Use the following information to answer the following Questions
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:

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) increase by $23,500.
C) decrease by $32,500.
D) change by an amount other than those listed.
E) change, but the amount cannot be determined based on the information presented.

Question

Use the following information to answer the following Questions
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:

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) increase by $23,500. 
C) decrease by $32,500. 
D) change by an amount other than those listed. 
E) change, but the amount cannot be determined based on the information presented.

Quizplus · Accepted Answer

Under an activity-based costing system, administrative costs are allocated to products and services based on the activities that consume those costs. In this case, consulting services would be charged with a higher proportion of administrative costs because they consume more of the activities that drive those costs.

Use the Following Information to Answer the Following Questions