Use the information below to answer the following question(s).A transportation company provides bussing, limo and taxi service.The company charges: $350 per day for bussing service; $2.00 per kilometre for taxi service; and, $3.50 per kilometre for limo service.Two individual clients, the school board and the city government offices use the majority of the limo service on a contract agreement.Bussing services are used exclusively by the school board, and the taxi service is used almost exclusively by the general public, although the school board uses the taxi services when individual students have to be transported on occasion.Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use, and $195 per day for each of the twenty buses.The company's costing system has tracked the following activities for the month:

-The previous controller at the transportation company had always estimated the indirect costs at 25% of billings.What indirect costs were accumulated for each major client for the month under this assumption?
A)School Board, $33,610.00; City Gov't, $1,080.88
B)School Board, $2,022.50; City Gov't, $33,610.00
C)School Board, $33,610.00; City Gov't, $1,762.63
D)School Board, $1,762.63; City Gov't, $1,921.25
E)School Board, $2,022.50; City Gov't, $1,762.63

Question

Use the information below to answer the following question(s).A transportation company provides bussing, limo and taxi service.The company charges: $350 per day for bussing service; $2.00 per kilometre for taxi service; and, $3.50 per kilometre for limo service.Two individual clients, the school board and the city government offices use the majority of the limo service on a contract agreement.Bussing services are used exclusively by the school board, and the taxi service is used almost exclusively by the general public, although the school board uses the taxi services when individual students have to be transported on occasion.Indirect costs are accumulated on internal records at $1.50 per kilometre for limo use and $1.00 per kilometre for taxi use, and $195 per day for each of the twenty buses.The company's costing system has tracked the following activities for the month:
 
-The previous controller at the transportation company had always estimated the indirect costs at 25% of billings.What indirect costs were accumulated for each major client for the month under this assumption?
A)School Board, $33,610.00; City Gov't, $1,080.88 
B)School Board, $2,022.50; City Gov't, $33,610.00 
C)School Board, $33,610.00; City Gov't, $1,762.63 
D)School Board, $1,762.63; City Gov't, $1,921.25 
E)School Board, $2,022.50; City Gov't, $1,762.63

Quizplus · Accepted Answer

To calculate the indirect costs accumulated for each major client, we need to calculate the total indirect costs for each service and then allocate them to each major client based on their usage.

For bussing service: 
Indirect costs = $195 per day per 20 buses = $3,900 per day 
Total indirect costs for the month = $3,900 x 25 days = $97,500

For taxi service: 
Indirect costs = $1.00 per km 
Total distance travelled = 12,000 km 
Total indirect costs for the month = $1.00 x 12,000 = $12,000

For limo service: 
Indirect costs = $1.50 per km 
Total distance travelled by the school board = 2,000 km 
Total distance travelled by the city government = 6,000 km 
Total distance travelled = 8,000 km 
Total indirect costs for the month = $1.50 x 8,000 = $12,000

Total indirect costs for the month = $97,500 + $12,000 + $12,000 = $121,500

Allocating the indirect costs: 
For bussing service: School Board only = $97,500 x 100% = $97,500 
For taxi service: General public = $12,000 x 95% = $11,400, School Board = $12,000 x 5% = $600 
For limo service: School Board = $12,000 x 2,000/8,000 = $3,000, City Government = $12,000 x 6,000/8,000 = $9,000

Therefore, the total indirect costs accumulated for each major client are: 
School Board = $97,500 + $600 + $3,000 = $101,100 
City Government = $9,000

Under the assumption that indirect costs are 25% of billings, the total billings for the month are: 
For bussing service: $350 per day x 25 days = $8,750 
For taxi service: $2.00 per km x 12,000 km = $24,000 
For limo service: $3.50 per km x 8,000 km = $28,000

Total billings for the month = $8,750 + $24,000 + $28,000 = $60,750 
Total indirect costs under this assumption = $60,750 x 25% = $15,187.50

Allocating the indirect costs under this assumption: 
For bussing service: School Board only = $15,187.50 x 100% = $15,187.50 
For taxi service: General public = $15,187.50 x 95% = $14,428.13, School Board = $15,187.50 x 5% = $759.38 
For limo service: School Board = $15,187.50 x 2,000/8,000 = $3,796.88, City Government = $15,187.50 x 6,000/8,000 = $11,390.63

Therefore, the total indirect costs accumulated for each major client are: 
School Board = $15,187.50 + $759.38 + $3,796.88 = $19,743.76 
City Government = $11,390.63

The correct answer is (C) School Board, $33,610.00; City Government, $1,762.63.

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