Terri Martin,CPA provides bookkeeping and tax services to her clients.She charges a fee of $60 per hour for bookkeeping and $90 per hour for tax services.Martin estimates the following costs for the upcoming year: Operating profits declined last year and Ms.Martin has decided to use activity-based costing (ABC)procedures to evaluate her hourly fees.She gathered the following information from last year's records: Martin cannot change the hourly fee for the bookkeeping services because of the number of competing firms in the area.If Martin wants to earn $60,000 pre-tax in the upcoming year,how much will she charge per hour for tax services?

Question

Terri Martin,CPA provides bookkeeping and tax services to her clients.She charges a fee of $60 per hour for bookkeeping and $90 per hour for tax services.Martin estimates the following costs for the upcoming year:  Operating profits declined last year and Ms.Martin has decided to use activity-based costing (ABC)procedures to evaluate her hourly fees.She gathered the following information from last year's records:  Martin cannot change the hourly fee for the bookkeeping services because of the number of competing firms in the area.If Martin wants to earn $60,000 pre-tax in the upcoming year,how much will she charge per hour for tax services?

Quizplus · Accepted Answer

Using activity-based costing, we can find the cost per hour for tax services as follows:
Cost per hour = (Total cost of tax services activities) / (Total hours of tax services)
= ($53,250 + $14,900 + $28,800 + $9,600) / (375 + 600 + 400 + 200)
= $106.5
Therefore, Martin should charge $107 per hour for tax services to earn $60,000 pre-tax in the upcoming year. However, since this is not an option, the closest option is C, which is $95 per hour.

Terri Martin,CPA Provides Bookkeeping and Tax Services to Her Clients