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Gant Accounting performs two types of services, Audit and Tax. Gant's overhead cost consist of computer support, $300,000; and legal support, $150,000.
   audit. tax
direct labor cost. $600,000 $900,000
CPU minutes. 40,000 10,000
Legal hours used. 200 800

If Gant allocates overhead using activity based costing (with CPU minutes the cost driver for computer support and legal hour
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Answer #1

Computer support Overhead cost = $300000

Using activity based costing, CPU minutes is used as cost driver for Computer support

Total CPU Minutes = 50000 Minutes (40000 Minutes for audit + 10000 Minutes for tax)

Computer support Overhead cost per CPU minute = $300000/ 50000 minutes = $6 per CPU minute

Legal support overhead cost = $150000

Using activity based costing, legal hours is used as cost driver for legal support

Total legal hours = 1000 hours ( 200 hours for audit + 800 hours for tax)

Legal support overhead cost per legal hour = $150000/1000 hours = $150 per legal hour

$6 per CPU minute and $150 per legal hour used

Audit Overhead

For Computer support = 40000 minutes * $6 per CPU minute = $240000

For legal support = 200 hours * $150 per legal hour = $30000

Total Audit overhead = $270000

Tax Overhead

For Computer support = 10000 minutes * $6 per CPU minute = $60000

For legal support = 800 hours * $150 per legal hour = $120000

Total Tax overhead = $180000

$270000 Audit overhead

$180000 Tax overhead

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