Kelly and Logan, an Accounting Firm, Provides Consulting and Tax

Multiple Choice

Kelly and Logan, an accounting firm, provides consulting and tax planning services. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning and for many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: $\begin{array} { | l | r | } \hline \text { Staff support } & \$ 180,000 \\\hline \text { In-house computing charges } & 50,000 \\\hline \text { Miscellaneous office costs } & 20.000 \\\hline \text { Total } & \$ 250.000 \\\hline\end{array}$ A recent analysis of staff support found a strong correlation with the number of clients served (consulting, 20 clients; tax planning, 60 clients) . In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the total client transactions.
If Kelly and Logan switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would:

A) decrease by $23,500.
B) increase by $23,500.
C) decrease by $32,500.
D) increase by $32,500.
E) decrease by $64,000.