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Gant Accounting performs two types of services, Audit and Tax. Gant’s overhead costs consist of computer...

Gant Accounting performs two types of services, Audit and Tax. Gant’s overhead costs consist of computer support, $333000; and legal support, $166500. 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 audit services using activity-based costing is

$299700.

$199800.

$166500.

$333000.

Business   Accounting   
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Answer #1
Audit Tax Total
CPU minutes 40,000 10,000 50,000
Legal hours used 200 800 1,000

Activity rate for computer support = Computer support cost/CPU minutes

= 333,000/50,000

= $6.66 per CPU minutes

Activity rate for legal support = legal support cost/ Legal hours used

= 166,500/1,000

= $166.5 per legal hour

Calculation of overhead applied to audit services

Activity Activity rate Activity used Overhead applied
Computer support $6.66 per CPU minutes 40,000 266,400
Legal support $166.5 per legal hour 200 33,300
Total $299,700

Overhead applied to audit services using activity-based costing = $299,700

Correct option is first

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