Martin and Beasley, an accounting firm, provides consulting and tax planning services. A recent analysis found that 55% of the f
irm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $270,000) has been allocated to services on this basis.The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows:Staff support $200,000In-House Computing Charges $50,000Misc. Office Cost 20,000Total Cost: 270,000A 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 35% of the total client base, consumed 30% of the firm's computer hours, and accounted for 20% of the total client transactions.If Martin and Beasley switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would: A. decrease by $32,500. B. increase by $32,500. C. decrease by $59,500. D. change by an amount other than those listed above. E. change, but the amount cannot be determined based on the information presented.Martin and Beasley, an accounting firm, provides consulting and tax planning services. A recent analysis found that 55% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $270,000) has been allocated to services on this basis.The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows:Staff support $200,000In-House Computing Charges $50,000Misc. Office Cost 20,000Total Cost: 270,000A 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 35% of the total client base, consumed 30% of the firm's computer hours, and accounted for 20% of the total client transactions.If Martin and Beasley switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would:(A) decrease by $32,500.(B) increase by $32,500.(C) decrease by $59,500.(D) change by an amount other than those listed above.(E) change, but the amount cannot be determined based on the information presented.
