Gant Accounting performs two types of services, Audit and Tax.Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000.Information on the two services is: $$\begin{array} { l r r }
& { \text { Audit } } &{ \text { Tax } } \
\text { Direct labor cost } & \$ 50,000 & \$ 100,000 \
\text { CPU minutes } & 40,000 & 10,000 \
\text { Legal hours used } & 200 & 800
\end{array}$$ Overhead applied to tax services using activity-based costing is

Question

Gant Accounting performs two types of services, Audit and Tax.Gant's overhead costs consist of computer support, $300,000; and legal support, $150,000.Information on the two services is: $$\begin{array} { l r r } 
& { \text { Audit } } &{ \text { Tax } } \
\text { Direct labor cost } & \$ 50,000 & \$ 100,000 \
\text { CPU minutes } & 40,000 & 10,000 \
\text { Legal hours used } & 200 & 800
\end{array}$$ Overhead applied to tax services using activity-based costing is

Quizplus · Accepted Answer

Using activity-based costing, overhead is allocated based on the activities that drive costs. For computer support, the cost driver is CPU minutes, and for legal support, it is legal hours used. Tax services use 10,000 CPU minutes out of a total of 50,000 (40,000 for Audit + 10,000 for Tax), so it gets 20% of the computer support cost: $300,000 * 20% = $60,000. Tax services use 800 legal hours out of a total of 1,000 (200 for Audit + 800 for Tax), so it gets 80% of the legal support cost: $150,000 * 80% = $120,000. Total overhead for Tax services is $60,000 + $120,000 = $180,000.

Gant Accounting Performs Two Types of Services, Audit and Tax