Question

Gant Accounting performs two types of services, Audit and Tax. Gant’s overhead costs consist of computer support, $267000; and legal support, $133500. Information on the two services is:

(See screenshot)

Answer 1

We can see here that the overhead applied to audit services using activity-based costing is $240,300.

To determine the overhead applied to audit services using activity-based costing, we need to calculate the overhead cost per unit of activity for each cost driver.

First, let's calculate the overhead cost per CPU minute:

Overhead cost per CPU minute = Computer support cost / Total CPU minutes

= $267,000 / (40,000 + 10,000)

= $267,000 / 50,000

= $5.34 per CPU minute

Next, let's calculate the overhead cost per legal hour:

Overhead cost per legal hour = Legal support cost / Total legal hours used

= $133,500 / (200 + 800)

= $133,500 / 1,000

= $133.50 per legal hour

Now, we can calculate the total overhead cost for audit services using the respective cost drivers:

Overhead cost for audit services = (Overhead cost per CPU minute × CPU minutes) + (Overhead cost per legal hour × Legal hours used)

= ($5.34 per CPU minute × 40,000 CPU minutes) + ($133.50 per legal hour × 200 legal hours)

= $213,600 + $26,700

= $240,300

Therefore, the overhead applied to audit services using activity-based costing is $240,300.

Answer 2

$240,300

Explanation:

Given :

Overhead cost :

Computer support = $267000

legal support = $133500

Overheads applied to audit services = (Number of CPU minutes used by Audit services * activity rate per CPU minute)

+

(number of legal hours used by Audit services * activity rate per legal hour)

The overhead applied to audit is thus :

40,000 * (267,000 / (40,000 + 10,000)) +

200 * (133500 / (200 + 800)

(40000 * 5.34) + (200 * 133.5)

= $240,300