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

Multiple Choice

Kelly and Logan, an accounting firm, provides consulting and tax planning services. 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. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning services, while 35% resulted from consulting services.
The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: $\begin{array}{lr}\text { Staff support } & \$ 180,000 \\\text { In-house computing charges } & 50,000 \\\text { Miscellaneous office costs } & 20,000 \\\text { Total } & \$250,000 \\\end{array}$
A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 20; tax planning, 60) . 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.
Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax planning services is:

A) 20%.
B) 60%.
C) 65%.
D) 75%.
E) 80%.