Carlin and Marley, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $270,000) has been allocated to services on this basis of billable hours to clients. A recent analysis found that 55% of the firm's billable hours to clients resulted from tax planning services, while 45% resulted from consulting services. 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 Miscellaneous office costs 20,000 Total$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 Carlin and Marley switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would:

Carlin and Marley

Using activity-based costing system, the amount of administrative cost chargeable to consulting services would be:

= $89,000

instead of $121,500 using the traditional method.

Explanation:

a) Data and Calculations:

Services provided by the accounting firm = consulting and tax planning

Total administrative cost = $270,000

Traditional allocation basis = billable hours to clients

Services                       Tax Planning       Consulting     Total

Traditional cost pool basis:

Billable hours to clients     55%                  45%             100%

Activity cost pool bases:

Client base                         65%                  35%             100%

Computer hours                70%                   30%             100%

Total client transactions    80%                  20%             100%

Activity Pools                     Overhead Costs  Activity Basis

Staff Support                           $200,000      Number of clients served

In-house computing charges     50,000       Number of computer hours

Miscellaneous office costs         20,000       Number of client transactions

Total administrative cost =     $270,000

Overhead Allocation for each Activity Cost Pool:

Services                                        Total       Tax Planning       Consulting    

Staff Support                           $200,000     $130,000             $70,000

In-house computing charges     50,000         35,000                15,000

Miscellaneous office costs         20,000         16,000                  4,000

Total administrative cost =     $270,000      $181,000             $89,000

Traditional costing method:

Billable hours to clients               100%              55%                  45%

Amount based on billable hours $270,000     $148,500       $121,500

answer; ///the correct answer is (ftc) federal trade commission;

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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