Gant Accounting performs two types of services, Audit and Tax. Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000. Information on the two services is: $\begin{array}{lrr}&\text { Audit }& \text { Tax }\
\text { Direct labor cost } & \$ 50,000 & \$ 100,000 \
\text { CPU minutes } & 40,000 & 10,000 \
\text { Leqal hours used } & 200 & 800
\end{array}$ Overhead applied to tax services using activity-based costing is
A)$150,000.
B)$180,000.
C)$270,000.
D)$300,000.

Question

Quizplus · Accepted Answer

Using activity-based costing, overhead is allocated based on the activities that drive costs. For computer support, the cost driver is CPU minutes, and for legal support, it is legal hours. Tax services use 10,000 out of 50,000 total CPU minutes (20%) and 800 out of 1,000 total legal hours (80%). Therefore, tax services are allocated 20% of computer support ($60,000) and 80% of legal support ($120,000), totaling $180,000.

Gant Accounting Performs Two Types of Services, Audit and Tax