Question
Please use the following information to answer the following questions.... - What is the total net income for the firm under the traditional direct-hour allocation
Please use the following information to answer the following questions....
- What is the total net income for the firm under the traditional direct-hour allocation base?
- What is the total net income for the firm using the three cost drivers in the ABC model?
Duwe Chetam and Howe:
The law firm of Duwe, Cheatam and Howe provides legal services for clients. During the year corporate clients required 5,000 hours of legal services, while individuals required 3,000 hours. The firm has traditionally used direct labor hours to assign overheads. However, Ms. Duwe believes services to business clients cost more than services to individuals and is considering an activity-based costing system. The firm's revenues and costs for the year are show below:
| Corporate | Individual | Total | |
| Revenue | $150,000 | $150,000 | $300,000 |
| Expenses: | |||
| Lawyers' salaries | $100,000 | $ 50,000 | $150,000 |
| Overhead: | |||
| Filing | $ 10,000 | ||
| Quality control | $ 5,000 | ||
| Data entry | $ 25,000 | ||
| Total Overhead | $ 40,000 |
Mr. Cheatam has kept records of the following data for use in the activity-based costing system:
| Activity Level | |||
| Overhead Cost | Cost Driver | Corporate | Individual |
| Filing | Number of clients | 5 | 5 |
| Quality control | Number of hours spent | 75 | 25 |
| Data entry | Number of pages entered | 1,000 | 1,500 |
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Auditing
Authors: Alan Millichamp, John Taylor
10th Edition
1408044080, 978-1408044087
