Business, 29.01.2021 16:10 Winechou

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
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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Carlin and Marley, an accounting firm, provides consulting and tax planning services. For many years...

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