Martin and Beasley, an accounting firm, provides consulting and tax planning services. A recent analysis found that 55% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $270,000) has been allocated to services on this basis. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff support $200,000 In-House Computing Charges $50,000 Misc. Office Cost 20,000 Total Cost: 270,000 A recent analysis of staff support found a strong correlation with the number of clients served. 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 clients served totaled 35% of the total client base, consumed 30% of the firm's computer hours, and accounted for 20% of the total client transactions. If Martin and Beasley switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would: A. decrease by $32,500. B. increase by $32,500. C. decrease by $59,500. D. change by an amount other than those listed above. E. change, but the amount cannot be determined based on the information presented.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Martin and Beasley, an accounting firm, provides consulting and tax planning services. A recent analysis
found that 55% of the firm's billable hours to clients resulted from tax planning and for many years, the
firm's total administrative cost (currently $270,000) has been allocated to services on this basis.
The firm, contemplating a change to activity-based costing, has identified three components of
administrative cost, as follows:
Staff support $200,000
In-House Computing Charges $50,000
Misc. Office Cost 20,000
Total Cost: 270,000
A recent analysis of staff support found a strong correlation with the number of clients served. 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 clients served totaled 35% of the total
client base, consumed 30% of the firm's computer hours, and accounted for 20% of the total client
transactions.
If Martin and Beasley switched from its current accounting method to an activity-based costing system, the
amount of administrative cost chargeable to consulting services would:
A. decrease by $32,500.
B. increase by $32,500.
C. decrease by $59,500.
D. change by an amount other than those listed above.
E. change, but the amount cannot be determined based on the information presented.
Transcribed Image Text:Martin and Beasley, an accounting firm, provides consulting and tax planning services. A recent analysis found that 55% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $270,000) has been allocated to services on this basis. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff support $200,000 In-House Computing Charges $50,000 Misc. Office Cost 20,000 Total Cost: 270,000 A recent analysis of staff support found a strong correlation with the number of clients served. 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 clients served totaled 35% of the total client base, consumed 30% of the firm's computer hours, and accounted for 20% of the total client transactions. If Martin and Beasley switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would: A. decrease by $32,500. B. increase by $32,500. C. decrease by $59,500. D. change by an amount other than those listed above. E. change, but the amount cannot be determined based on the information presented.
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