Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

DolphinCorp is an old-school consulting firm that wants to move from traditional methods for apportioning overhead costs to activity-based costing of overhead. Last year, they

DolphinCorp is an old-school consulting firm that wants to move from traditional methods for apportioning overhead costs to activity-based costing of overhead. Last year, they generated $5 million in revenue against $2 million in direct costs and $1 million in overhead. Traditionally, on a project, they would simply mark up the estimated direct costs by the ratio of overhead to direct costs.

As they move to activity-based costing, their accounting team has identified two main cost pools, administration and marketing. Administration costs are driven by the time senior partners spend on a project (valued at $190 an hour of partner time), while marketing costs are driven by total revenue from a project (valued at $0.10 per dollar of revenue earned).

One of the partners just won a contract worth $50,582 in total revenue. The firm estimated it would take $27,002 worth of direct labor and 3 hours of partner time doing project administration.

What is the *difference* in overhead costs on this project between the traditional and activity-based costing methods? (Hint: solve for the traditional overhead cost, then the activity-based, then subtract the latter from the former).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Mathematics Derivatives And Structured Products

Authors: Chan

1st Edition

9811336954, 978-9811336959

More Books

Students also viewed these Finance questions

Question

10. Describe the relationship between communication and power.

Answered: 1 week ago