Question

Gant Accounting performs two types of services, Audit and Tax. Gant’s overhead costs consist of computer support, $324000; and legal support, $162000. Information on the two services is:

	Audit	Tax
Direct labor cost	$50000	$100000
CPU minutes	40000	10000
Legal hours used	200	800

Overhead applied to tax services using activity-based costing is

$162000.

$194400.

$291600.

$324000.

Answer 1

Gant Overheads are as follows
i) Computer Support	324000
II) Legal Support	162000
The above Overhead Costs are to be allocated among Audit and Tax in the following Ratio
	Audit : Tax	Calculation
Computer Support overheads are to be allocated based on CPU Minutes	20 : 5	(40,000:10,000)
Legal Support overheads are to be allocated based on Legal Hours used	1 : 4	(200:800)
Overheads to be allocated to Tax services based on activity based costing are as follows	Amount
Computer Support (324000*5/25)	64,800
Legal Support (162000*4/5)	1,29,600
Toatal amount to be allocated to Tax services based on activity based costing =	1,94,400