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: $$\begin{array} { l r r }
& \text { Audit } & \multicolumn{1}{c} { \text { Tax } } \
\cline { 2 - 3 } \text { Direct labor cost } & \$ 50,000 & \$ 100,000 \
\text { CPU minutes } & 40,000 & 10,000 \
\text { Legal hours used } & 200 & 800
\end{array}$$ Overhead applied to tax services using activity-based costing is
A) $150,000.
B) $180,000.
C) $270,000.
D) $300,000.

Question

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: $$\begin{array} { l r r } 
& \text { Audit } & \multicolumn{1}{c} { \text { Tax } } \
\cline { 2 - 3 } \text { Direct labor cost } & \$ 50,000 & \$ 100,000 \
\text { CPU minutes } & 40,000 & 10,000 \
\text { Legal hours used } & 200 & 800
\end{array}$$ Overhead applied to tax services using activity-based costing is
A) $150,000.
B) $180,000.
C) $270,000.
D) $300,000.

Quizplus · Accepted Answer

To calculate the overhead applied to tax services using activity-based costing (ABC), we first need to determine the cost drivers and their rates for each overhead cost. The overhead costs are computer support ($300,000) and legal support ($150,000).1. **Computer Support (based on CPU minutes):**   - Total CPU minutes = 40,000 (Audit) + 10,000 (Tax) = 50,000 minutes   - Cost per CPU minute = $300,000 / 50,000 = $6 per minute   For Tax services:   - CPU minutes for Tax = 10,000   - Overhead from Computer Support for Tax = 10,000 * $6 = $60,0002. **Legal Support (based on Legal hours used):**   - Total Legal hours = 200 (Audit) + 800 (Tax) = 1,000 hours   - Cost per Legal hour = $150,000 / 1,000 = $150 per hour   For Tax services:   - Legal hours for Tax = 800   - Overhead from Legal Support for Tax = 800 * $150 = $120,000Adding the overhead costs from both Computer and Legal Support for Tax services:- Total Overhead for Tax = $60,000 (Computer) + $120,000 (Legal) = $180,000Therefore, the correct answer is B) $180,000.

Gant Accounting Performs Two Types of Services, Audit and Tax