Reference no: EM132658707
Question - Carlin and Marley, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $291,000) has been allocated to services on this basis of billable hours to clients. A recent analysis found that 55% of the firm's billable hours to clients resulted from tax planning services, while 45% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows:
Staff Support $207,000
In-house computing charges 57,000
Miscellaneous office costs 27,000
Total $291,000
A recent analysis of staff support found a strong correlation with the number of clients served. 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 clients served totaled 40% of the total client base, consumed 35% of the firm's computer hours, and accounted for 25% of the total client transactions.
If Carlin and Marley switched from its current accounting method to an activity-based costing system, compute the amount of administrative cost chargeable to consulting services?
a. decrease by $21,450.
b. increase by $21,450.
c. decrease by $50,550.
d. change by an amount other than those listed.
e. change, but the amount cannot be determined based on the information presented.