Ellis Bradley (EB) is a regional CPA firm that provides client services in three areas, Accounting...

  

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Ellis Bradley (EB) is a regional CPA firm that provides client services in three areas, Accounting & Assurance (A&A) Services, Tax Services, and Specialty Services. A&A Services include audit, review, and compilation as well as accounting and payroll services. Tax services include tax preparation and reporting as well as tax research and planning. Specialty Services encompass a variety of services such as business advisory (strategic planning, operations improvement), risk management, business valuation, forensics (fraud investigation), and employee benefits. The financial results for the year just ended are presented below: A&A Tax Revenues Variable costs Contribution margin Traceable fixed costs Common fixed costs Operating income $4,350,000 1,840,000 2,510,000 770,000 Support Area Human Resources Tech Support $3,450,000 1,320,000 2,130,000 460,000 Variable costs are those associated with client service, such as professional labor. The traceable fixed costs are fixed costs that can be traced to the client service area, such as secretarial support assigned to a client service area. The common fixed costs are indirect costs common to all client service areas that cannot be traced, and includes costs such as building rent and utilities, computer servers and support, and human resources. Building Occupancy Total common fixed costs Specialty Total $1,800,000 $9,600,000 4,000,000 5,600,000 1,420,000 2,200,000 $1,980,000 You have been assigned the task of estimating a fixed cost allocation rate (FOHR) for each client service area using the prior year's actual information and following the steps in requirement (a) below. You make some inquiries to gather the following information. The common fixed costs can be grouped into three categories: Human Resources (HR), which includes all personnel-related costs such as administering employee benefits, recruiting, and employee training; Technology Support (TS), which consists of the computers, servers, software, and technology support personnel; and Building Occupancy (BO), which includes costs such as rent and utilities, depreciation on fixtures and equipment, insurance, etc. You determine appropriate allocation bases are as follows: Costs $ 510,000 950,000 740,000 $2,200,000 840,000 960,000 190,000 Allocation Base Number of employees Computer time Square footage Information on service provided by each support area to the other areas follows: Human Tech Bldg Resources Support Occpncy 6 * No. of employees Computer time Square feet Professional labor hrs. Costs 4,000 300 a. 1,000 (i) $740,000 A&A 60 3,500 1,200 48,000 $770,000 Tax $510,000 $950,000 (Notes: *Although HR would have employees and TS would use computer time, the numbers are excluded because a department would not allocate to itself. Building occupancy includes bills for such items as rent and insurance for the entire office; thus, building occupancy does not use any computer time, have any employees, or occupy any square footage.) 54 11,000 4,500 29,000 $460,000 Specialty 30 6,500 3,000 22,000 $190,000 REQUIRED: For each method listed below, calculate the fixed cost allocation rate (FOHR) for each client service area (A&A, Tax, Specialty) using the following steps: Direct method. Steps: (1) (2) Allocate the support costs to the client service areas using the direct method. Add the client service area's traceable fixed cost to the allocated common support costs to determine the total fixed costs for each client service area. Ellis Bradley (EB) is a regional CPA firm that provides client services in three areas, Accounting & Assurance (A&A) Services, Tax Services, and Specialty Services. A&A Services include audit, review, and compilation as well as accounting and payroll services. Tax services include tax preparation and reporting as well as tax research and planning. Specialty Services encompass a variety of services such as business advisory (strategic planning, operations improvement), risk management, business valuation, forensics (fraud investigation), and employee benefits. The financial results for the year just ended are presented below: A&A Tax Revenues Variable costs Contribution margin Traceable fixed costs Common fixed costs Operating income $4,350,000 1,840,000 2,510,000 770,000 Support Area Human Resources Tech Support $3,450,000 1,320,000 2,130,000 460,000 Variable costs are those associated with client service, such as professional labor. The traceable fixed costs are fixed costs that can be traced to the client service area, such as secretarial support assigned to a client service area. The common fixed costs are indirect costs common to all client service areas that cannot be traced, and includes costs such as building rent and utilities, computer servers and support, and human resources. Building Occupancy Total common fixed costs Specialty Total $1,800,000 $9,600,000 4,000,000 5,600,000 1,420,000 2,200,000 $1,980,000 You have been assigned the task of estimating a fixed cost allocation rate (FOHR) for each client service area using the prior year's actual information and following the steps in requirement (a) below. You make some inquiries to gather the following information. The common fixed costs can be grouped into three categories: Human Resources (HR), which includes all personnel-related costs such as administering employee benefits, recruiting, and employee training; Technology Support (TS), which consists of the computers, servers, software, and technology support personnel; and Building Occupancy (BO), which includes costs such as rent and utilities, depreciation on fixtures and equipment, insurance, etc. You determine appropriate allocation bases are as follows: Costs $ 510,000 950,000 740,000 $2,200,000 840,000 960,000 190,000 Allocation Base Number of employees Computer time Square footage Information on service provided by each support area to the other areas follows: Human Tech Bldg Resources Support Occpncy 6 * No. of employees Computer time Square feet Professional labor hrs. Costs 4,000 300 a. 1,000 (i) $740,000 A&A 60 3,500 1,200 48,000 $770,000 Tax $510,000 $950,000 (Notes: *Although HR would have employees and TS would use computer time, the numbers are excluded because a department would not allocate to itself. Building occupancy includes bills for such items as rent and insurance for the entire office; thus, building occupancy does not use any computer time, have any employees, or occupy any square footage.) 54 11,000 4,500 29,000 $460,000 Specialty 30 6,500 3,000 22,000 $190,000 REQUIRED: For each method listed below, calculate the fixed cost allocation rate (FOHR) for each client service area (A&A, Tax, Specialty) using the following steps: Direct method. Steps: (1) (2) Allocate the support costs to the client service areas using the direct method. Add the client service area's traceable fixed cost to the allocated common support costs to determine the total fixed costs for each client service area.