Question

Teri Martin Nerdmeister, CPA provides bookkeeping and tax services to her clients. She charges a fee of $60 per hour for bookkeeping and $90 an hour for tax services. Martin estimates the following overhead costs for the upcoming year:Office Supplies $16,000Computer fees 24,000Secretary's salary 30,000Rent 18,000$88,000Operating profits declined last year and Ms. Martin has decided to use activity based coating (ABC) procedures to evaluate her hourly fees. She gathered the following info from last year's records: Top of Form Activity Bottom of Form Cost Driver Bookkeeping Tax Services Office Supplies Hours billed 1200 800 Computer fees Computer hours used 400 600 Secretary's salary Number of clients 16 84 Rent Types of services used 1 1 Bottom of Form 1. What is the total cost allocated to the bookkeeping services using activity-based costing?Based on the information in question #3 Martin wants her hourly fees for the tax services to be 160% of their activity-based costs. What is the fee per hour for tax services in the upcoming year?

Answer 1

Answer: a. 33,000 b. $110

Explanation:

The following information can be derived from the question:

The total cost allocated to the bookkeeping services using activity-based costing will be:

Office Supplies will be:

= (16000 × 1200) ÷ (1200 + 800)

= 19200000/2000

= 9600

Computer Fees will be:

= (24000 × 400) ÷ (400 + 600)

= 9600000/1000

= 9600

Secretary's Salary will be:

= (30000 × 16) ÷ (16 +84)

= 480000/100

= 4800

Rent will be:

= (18000 ×™1) ÷ (1+1)

= 18000/2

= 9000

Therefore, the total Cost that is allocated will be:

= 9600 + 9600 + 4800 + 9000

= $33000.

b. Here, we are told that Martin wants her hourly fees for the tax services to be 160% of their activity-based costs. Therefore, the fee per hour for tax services in the upcoming year will be:

= [(88000 - 33000)/800] × 160%

= (55000/800) × 1.6

= 68.75 × 1.6

= $110