Kelly and Logan, an Accounting Firm, Provides Consulting and Tax

question 9

Multiple Choice

Kelly and Logan, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning services, while 35% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: $\begin{array}{lr}\text { Staff support } & \$ 180,000 \\\text { In-house computing charges } & 50,000 \\\text { Miscellaneous office costs } & 20,000 \\\text { Total } & \$ 250,000 \\\end{array}$
A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 20; tax planning, 60) . 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 consumed 30% of the firm's computer hours and had 20% of the total client transactions.
If Kelly and Logan 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 $23,500.
• B) increase by $23,500.
• C) decrease by $32,500.
• D) change by an amount other than those listed.
• E) change, but the amount cannot be determined based on the information presented.

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Definitions:

Coma

A deep state of prolonged unconsciousness in which a person cannot be awakened or respond to stimuli.

Visual Cortex

is the part of the cerebral cortex responsible for processing visual information, located in the occipital lobe of the brain.

Occipital Lobe

The rearmost lobe in the brain, responsible for processing visual information from the eyes.

Cortical Regions

Areas of the brain's cerebral cortex involved in various higher-level functions including sensation, perception, memory, and voluntary physical action.