James and Quigley, LLC, is a CPA firm that offers both tax and audit services to its clients. The firm bills clients for cost plus 10%. It is straightforward to trace the direct costs associated with a particular client or engagement. However, the firm also incurs about $45,000 in support costs (or overhead) each month. Currently, the firm accumulates this overhead costs into three pools. The tax-related pool contains the cost of subscribing to tax journals, tax-related training, and so on. Likewise, the audit pool contains costs related to maintaining audit expertise. The final pool, administration, pertains to costs such as maintaining the office and secretarial support.
The firm wishes to explore alternative ways of allocating this overhead to clients so that each client is charged for its fair share of the CPA firm€™s overhead costs. The following table provides relevant data.

Required:
a. Using the step-down method, what is the overhead cost allocated to each client? Allocate administration costs first.
b. Recall that there are three methods€”the direct method, the step-down method, and the reciprocal method€”for allocating support department costs. Would your answer to part (a) differ if you employed the direct method? Why or why not?
c. Would your answer to part (a) hold regardless of the order in which we allocated support activities for the step-down allocation?
d. Using logic rather than numbers, argue why your answer to part (a) would not differ if you employed the reciprocalmethod?

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Adminis AuditTaxtration Client 1 Client 2 15,000 $7,500 $22,500 Traced costs Audit Tax 40% 70% 40% 60% 30% 30% Services provided by Administration 10% 20%