QUESTION 5

Bridges and Lloyd, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $274,000) has been allocated to services on the basis of billable hours to clients. A recent analysis found that 70% of the firm's billable hours to clients resulted from tax planning services, while 30% resulted from consulting services. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows:

Staff Support	$	188,000
In-house computing charges		58,000
Miscellaneous office costs		28,000
Total	$	274,000

A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 15; tax planning, 60). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 15% of the total client transactions. If Bridges and Lloyd switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would:

Multiple Choice

• decrease by $23,000.

• increase by $23,000.

• decrease by $32,400.

• change by an amount other than those listed.

• change, but the amount cannot be determined based on the information presented.