Bridges and Lloyd, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning services, while 35% resulted from consulting services. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff Support $ 180,000
In-house computing charges 50,000
Miscellaneous office costs 20,000
Total $ 250,000
A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 20; 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 20% 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:.
a. decrease by $23,500.
b. change, but the amount cannot be determined based on the information presented.
c. increase by $23,500.
d. decrease by $32,500.
e. change by an amount other than those listed.

Bridges and Lloyd

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:.

d. decrease by $32,500.

Explanation:

a) Data and Calculations:

Total administrative cost = $250,000

Services                       Tax Planning       Consulting     Total

Traditional cost pool basis:

Billable hours to clients     65%                  35%             100%

Administrative costs     $162,500         $87,500        $250,000

Activity cost pool bases:

Client base                         80%                  20%             100%

Computer hours                70%                   30%             100%

Total client transactions    80%                  20%             100%

ABC Allocation:

Services                                              Tax Planning    Consulting

Staff Support                       $ 180,000    $144,000     $36,000

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

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

Total                                  $ 250,000    $195,000      $55,000

                     Tax Planning       Consulting        Total

Traditional        $162,500          $87,500        $250,000

ABC system     $195,000          $55,000       $250,000

Difference         $32,500         -$32,500       $0

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

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