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.
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 And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter18: Activity-based Costing
Section: Chapter Questions
Problem 13E: Handbrain Inc. is considering a change to activity-based product costing. The company produces two...
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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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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