MA Week $5$ Homework $($due Week $6$ in class$)$

Tan & Partners is an accounting firm located in the central business district area in Singapore. It provides

two products to its clients $-$tax services and audit services. Last year, total overhead costs of $$1,000,000$

were allocated based on direct labour hours. A total of $10,000$ direct labour hours were required last year

for tax clients at a cost of $$350,000,$ and $30,000$ direct labour hours were required for audit clients at a cost

of $$1,200,000.$ Direct materials used were negligible and are included in overhead costs. Sales revenue

totalled $$720,000$ for tax services and $$2,200,000$ for audit services.

Starting this year, Tan & Partners would like to use activity$-$based costing to allocate overhead rather than

use one plantwide rate based on direct labour hours. The following estimates are for the activities and

related activity measure $($cost drivers$)$ identified as having the greatest impact on overhead costs.

During the current year the company:

Did not change the hourly rate charged to clients for both tax and audit services.

$11,000$ direct labour hours were required for tax clients and $29,000$ direct labour hours were required

for audit clients.

Total actual direct labour hours equal total budgeted labour hours.

Had the same direct labour cost per hour as last year.

Incurred the following activities:

Actual Activities:

Using activity$-$based costing, compute the activity rate for each activity cost pool.

$24.$ Using activity$-$based costing, compute the total costs for tax services and audit services.

$25.$ Using traditional costing $($the plantwide allocation method$),$ compute the total costs for tax services and audit services, assuming that the company would like to allocate the total cost of scheduling and data entry, advertising in journals, and computer usage to tax and audit services. What type of services is over$-$costed under traditional costing?