Bridges and Lloyd, 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: Staff Support$180,000 In-house computing charges 50,000 Miscellaneous office costs 20,000 Total$250,000 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. 80%.
D. 65%.
E. 75%.
Answer: E
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