Grady and Associates performs a variety of activities related to information sys
ID: 2607273 • Letter: G
Question
Grady and Associates performs a variety of activities related to information systems and e-commerce consulting in Toronto, Canada. The firm, which bills $174 per hour for services performed, is in a very tight local labor market and is having difficulty finding quality help for its overworked professional staff. The cost per hour for professional staff time is $84. Selected information follows.
Billable hours to clients for the year totaled 9,400, consisting of information systems services, 5,640; e-commerce consulting, 3,760.
Administrative cost of $432,760 was (and continues to be) allocated to both services based on billable hours. These costs consist of staff support, $229,440; in-house computing, $162,000; and miscellaneous office charges, $41,320.
A recent analysis of staff support costs found a correlation with the number of clients served. In-house computing and miscellaneous office charges varied directly with the number of computer hours logged and number of client transactions, respectively. A tabulation revealed the following data:
Required:
3. Assume that the firm uses activity-based costing. Determine the profitability of the firm’s e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue.
Information Systems Services E-Commerce Consulting Total Number of clients 280 100 380 Number of computer hours 4,090 2,440 6,530 Number of client transactions 820 890 1,710Explanation / Answer
1. Activity-based application rates:
Activity
Cost
Activity
Driver
Application
Rate
Staff support
$229,440
÷
380 clients
=
$603.7895 per client
In-house computing
162,000
÷
6,530 computer
hours (CH)
=
$24.8086 per CH
Miscellaneous
office charges
41,320
÷
1,710 client
transactions (CT)
=
$24.1637 per CT
Staff support, in-house computing, and miscellaneous office charges of information systems services and e-commerce consulting:
Activity
Information Systems Services
E-Commerce Consulting
Staff support:
280 clients x $603.7895...
$169,061
100 clients x $603.7895...
$ 60,379
In-house computing:
4,090 CH x $24.8086……….
101,467
2,440 CH x $24.8086……….
60,533
Miscellaneous office charges:
820 CT x $24.1637…………...
19,814
890 CT x $24.1637…………...
21,506
Total ……………………………….
$290,342
$142,418
Profitability of information systems services and e-commerce consulting:
Information
Systems
Services
E-Commerce
Consulting
Billings:
5,640 hours x $174………..
$981,360
3,760 hours x $174………..
$654,240
Less: Professional staff cost:
5,640 hours x $84……
(473,760)
3,760 hours x $84……
(315,840)
Administrative cost…….
(290,342)
(142,418)
Income…………………………..
$ 217,258
$ 195,982
Income ÷ billings……………...
22.14%
29.96%
Activity
Cost
Activity
Driver
Application
Rate
Staff support
$229,440
÷
380 clients
=
$603.7895 per client
In-house computing
162,000
÷
6,530 computer
hours (CH)
=
$24.8086 per CH
Miscellaneous
office charges
41,320
÷
1,710 client
transactions (CT)
=
$24.1637 per CT
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