Question

question

please analyze that comparison of the overhead allocation to each service unit under both methods, traditional and Activity-Based Costing (ABC), which method is better for this company?

DATA FOR TASK B:	?	?	?	?
2018 BUDGETED DATA FOR THE ADVISORY SERVICE	?	?	?	?
Budgeted billable hours	5000	hours of billable work	?	?
Charge out rate per hour	$210.00	per billable hour	?	?
Professional labour	$95.00	per billable hour	?	?
Variable overhead	$60,000	see 'overhead' note below		?
Fixed overhead	$142,000			?
Overhead costs: Budgeted Variable and Fixed overhead rates are determined by dividing the budgeted (fixed or variable) overhead by the budgeted billable hours. This rate is used to apply overhead to each job as it is performed and eventually billed to the client.				?
				?
				?
?	?	?	?	?
2018 ACTUAL COSTS FOR THE ADVISORY SERVICE	?	?	?	?
Actual billable hours	5900	?	?	?
Charge out rate per hour	$210.00	per hour	?	?
Actual professional hours worked	6000	?	?	?
Actual professional hours paid	$97.00	per hour	?	?
Actual variable overhead	$56,000	?	?	?
Actual fixed overheads	$162,000	?	?	?
?	?	?	?	?
?	?	?	?	?
ADDITIONAL DATA COLLECTED ON OVERHEAD COSTS FOR ABC CALCULATIONS	?	?	?	?
2019 Budgeted Overhead costs for T&K Solutions have been assigned to the following activity related cost pools:	?	?	?	?
Overhead Cost Pool:	Budgeted Overhead Costs $	Cost (activity) driver	Total Expected Activity
Facility related	96,000	Floor Space	380	sqm
Technical Support	24,000	# of IT requests	136	requests
Administrative	160,000	Billable hours	14,130	billable hours
Client Travel	82,000	Km's travelled	2320	km
Advertising	48,000	# clients	200	clients
?	?	?	?	?
Expected usage by division:	Tax	Bookkeeping	Advisory	?
Billable hours	5,600	1,830	6,700	?
Floor Space	130	55	195	?
# IT requests	46	15	75	?
Km's travelled	330	80	1,910	?
# clients	73	19	108	?

CALCULATIONS FOR SCHEDULE 3: 2019 Budgeted Overhead Calculations	?	?	?	?	?	?	?	?	?	?
ACTIVITY BASED COSTING ALLOCATION OF OVERHEAD COSTS	?	?	?	?	Activity by service			Cost per service
Activity	Cost	Cost driver	Total cost driver	Cost per cost driver	Tax	Bookkeeping	Advisory	Tax	Bookkeeping	Advisory
facility related	$96,000	floor space	380	$252.63	130	55	195	$32,842.11	$13,894.74	$49,263.16
technical support	$24,000	# of IT request	136	$176.47	46	15	75	$8,117.65	$2,647.06	$13,235.29
adminstrative	$160,000	billiable hours	14136	$11.32	5,600	1,830	6,700	$63,384.27	$20,713.07	$75,834.75
client travel	$82,000	km's travelled	2320	$35.34	330	80	1,910	$11,663.79	$2,827.59	$67,508.62
advertising	$48,000	# clients	200	$240.00	73	19	108	$17,520.00	$4,560.00	$25,920.00
?	?	?	?	?	?	?	Total	$133,527.81	$44,642.45	$231,761.82
Total overhead	$410,000	?	?	?	?	?	?	?	?	?
Total Billable hours	14,130	?	?	?	?	?	?	?	?	?
OH rate=	$29.02	?	?	?	?	?	?	?	?	?
OH COST ADVISORY	$194,409.06	?	?	?	?	?	?	?	?	?
OH Cost Bookkeeping	$53,099.79	?	?	?	?	?	?	?	?	?
OH Cost Tax	$162,491.15	?	?	?	?	?	?	?	?	?

TASK B SCHEDULE 4:	Prepare a comparison of overhead allocation :
?	?	?	?
Existing OH Allocation	?	ABC Allocation	?
OH Rate:	?	OH Rates:	?
Per Billable hour	?	Per Activity	?
	$29.02	Facility related	$252.63
?	?	Technical Support	$176.47
?	?	Administrative	$11.32
?	?	Client Travel	$35.34
?	?	Advertising	$240.00
OH costs by service (total $)	?	OH costs by service (total $)	?
Tax	?	Tax	$133,527.81
Bookkeeping	?	Bookkeeping	$44,642.45
Advisory	194,409.09	Advisory	$231,762

Answer 1

The best allocation is ABC only, as there are many activities in the particular organisation, each activity has particular basis for its allocation. So the existing allocation will not give a proper allocation of overhead.The ABC is better for the company.