Non-Manufacturing Companies Airlines can determine the cost per passenger for each route. Hotels can estimate the cost per room per day. Hospitals can calculate the cost per patient per day. Law Firms can compute the cost per service hour. Colleges can determine the cost per student (or per course). Example-CPA Firm Original Data: Income Statement Bookkeeping Tax Total Revenues 50,000 50,000 100,000 Expenses (36,000) (36,000) (72,000) Net Income 14,000 14,000 28,000 Cost per hour of service: Bookkeeping Total Expenses 36,000 # of Billing Hours 1,200 Cost per hour of service: 30.00 Tax 36,000 1,200 30.00 Total 72,000 2,400 30.00 The expenses have been split 50/50 between the divisions. Now, using ABC, the firm breaks down the expense into three cost pools as follows: Percent Allocated to 3 Cost Pools Total Expense Bookkeeping Tax Direct Expense $34,000 50% 50% Indirect Supervisory Expense $30,000 25% 75% Office Overhead $8,000 40% 60% Total Expenses $72,000 What costs are in direct expenses? Answer: What costs are in the indirect supervisory expenses? Answer: What costs are in office overhead? Answer: Chapter 5 Lecture - Page 11 Use the percentages from the previous page to complete the table: Please fill in all the blanks below: Total Tax Bookkeeping Income Statement 50,000 100,000 Revenues 50,000 Direct Expense Indirect Supervisory Expense Office Overhead Net Income Cost per hour of service: Bookkeeping Tax Total Total Expenses 1,200 1,200 2,400 /# of Billing Hours Cost per hour of service: What did this accounting firm just learn about their cost structure? Answer-make sure you explain your answer thoroughly: What kinds of bad decisions were they making before ABC? Answer-make sure you explain your answer thoroughly: Chapter 5 lecture - Page 12