Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 5.20E
Alternative allocation bases for a professional services firm. The Walliston Group (WG) provides tax advice to multinational firms. WG charges clients for (a) direct professional time (at an hourly rate) and (b) support services (at 30% of the direct professional costs billed). The three professionals in WG and their rates per professional hour are as follows:
| Professional | Billing Rate per Hour |
| Max Walliston | $640 |
| Alexa Boutin | 220 |
| Jacob Abbington | 100 |
WG has just prepared the May 2017 bills for two clients. The hours of professional time spent on each client are as follows:
| Hours per Client | ||
| Professional | San Antonio Dominion | Amsterdam Enterprises |
| Walliston | 26 | 4 |
| Boutin | 5 | 14 |
| Abbington | 39 | 52 |
| Total | 70 | 70 |
- 1. What amounts did WG bill to San Antonio Dominion and Amsterdam Enterprises for May 2017?
Required
- 2. Suppose support services were billed at $75 per professional labor-hour (instead of 30% of professional labor costs). How would this change affect the amounts WG billed to the two clients for May 2017? Comment on the differences between the amounts billed in requirements 1 and 2.
- 3. How would you determine whether professional labor costs or professional labor-hours is the more appropriate allocation base for WG’s support services?
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The Waterston Group (WG) provides tax advice to multinational firms. WG charges clients for (a) direct professional time (at an hourly rate) and (b)
support services (at 30% of the direct professional costs billed). The three professionals in WG and their rates per professional hour are as follows:
(Click the icon to view the hourly rates.)
WG has just prepared the bills for two clients. The hours of professional time spent on each client are as follows:
(Click the icon to view the hours by client.)
Read the requirements.
Requirement 1. What amounts did WG bill to South Beach Dominion and Amsterdam Enterprises?
Determine the formula needed to calculate the total cost per professional for each client when WG allocates support costs at 30% of direct professional
costs.
+ (
X
=
Cost per professional
Question Viewer
Breaksit is a consulting firm providing financial consulting services to its clients. The following information is given relating to its operations:
Consultancy fees per client $95
Variable expenses per client $42
Fixed overheads $318,000
The company targets a net income of at least $190,800 for the forthcoming year.
REQUIRED: Calculate the number of clients Breaksit must service to generate the target income.
Lisa Claussen, CPA, pays her new staff accountant, Gina, a salary equivalent to $27 per hour while Lisa receives a
salary equivalent to $39 per hour. The firm's predetermined indirect cost allocation rate for the year is $16 per hour.
Claussen bills for the firm's services at 25% over cost. Assume Lisa works 1 hours and Gina works 16 hours
preparing a tax return for Mikayla Jones.
1. What is the total cost of preparing Jones's tax return?
2. How much will Lisa bill Jones for the tax work?
1. What is the total cost of preparing Jones's tax return?
Enter the direct and indirect costs for preparing Jones's tax return.
Direct Cost: Lisa's time
Direct Cost: Gina's time
Total Direct Cost:
Indirect Cost:
Total cost of preparing tax return
hrs.
hrs.
hrs.
Chapter 5 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 5 - What is broad averaging, and what consequences can...Ch. 5 - Why should managers worry about product...Ch. 5 - What is costing system refinement? Describe three...Ch. 5 - What is an activity-based approach to designing a...Ch. 5 - Describe four levels of a cost hierarchy.Ch. 5 - Why is it important to classify costs into a cost...Ch. 5 - What are the key reasons for product cost...Ch. 5 - Prob. 5.8QCh. 5 - Department indirect-cost rates are never...Ch. 5 - Prob. 5.10Q
Ch. 5 - Prob. 5.11QCh. 5 - Prob. 5.12QCh. 5 - Activity-based costing is the wave of the present...Ch. 5 - Increasing the number of indirect-cost pools is...Ch. 5 - The controller of a retail company has just had a...Ch. 5 - Conroe Company is reviewing the data provided by...Ch. 5 - Prob. 5.17MCQCh. 5 - Cost hierarchy. Roberta, Inc., manufactures...Ch. 5 - ABC, cost hierarchy, service. (CMA, adapted)...Ch. 5 - Alternative allocation bases for a professional...Ch. 5 - Plant-wide, department, and ABC Indirect cost...Ch. 5 - Plant-wide, department, and activity-cost rates....Ch. 5 - ABC, process costing. Sander Company produces...Ch. 5 - Department costing, service company. DLN is an...Ch. 5 - Activity-based costing, service company....Ch. 5 - Activity-based costing, manufacturing. Decorative...Ch. 5 - ABC, retail product-line profitability. Fitzgerald...Ch. 5 - Prob. 5.28ECh. 5 - Activity-based costing. The job-costing system at...Ch. 5 - ABC, product costing at banks,...Ch. 5 - Problems 5-31 Job costing with single direct-cost...Ch. 5 - Job costing with multiple direct-cost categories,...Ch. 5 - Job costing with multiple direct-cost categories,...Ch. 5 - First-stage allocation, time-driven activity-based...Ch. 5 - First-stage allocation, time-driven activity-based...Ch. 5 - Department and activity-cost rates, service...Ch. 5 - Activity-based costing, merchandising. Pharmahelp,...Ch. 5 - Choosing cost drivers, activity-based costing,...Ch. 5 - ABC, health care. Crosstown Health Center runs two...Ch. 5 - Unused capacity, activity-based costing,...Ch. 5 - Unused capacity, activity-based costing,...Ch. 5 - ABC, implementation, ethics. (CMA, adapted) Plum...Ch. 5 - Activity-based costing, activity-based management,...
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