Heath Greenshade provides consulting and tax preparation services to his clients. He charges a fee of $100 per hour for each service. His revenues and expenses for the year are shown in the following income statement:

Heath has kept records of the following data for cost allocation purposes:

a. Complete the income statement using these three cost drivers.
b. Recompute the income statements using hours billed as the only allocation base.
c. How might Heath's decisions be altered if he were to use only hours billed to allocate expenses?

Transcribed Image Text:

Tax ConsultingTotal ..$80,000 Expenses: 40,000 36,000 20,000 - $104,000 Supplies... Profit. Activity Level Expenses Cost Driver Tax Preparation Consulting Filing, scheduling, and data entry Supplies Computer costs Number of Clients Number of Hours Billed Computer Hours 72 800 1,000 48 1,200 600