Problem -
Clark and Shiffer LLP perform activities related to e-commerce consulting and information systems in Vancouver, British Columbia. The firm, which bills $160 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 $70. Selected information follows.
- Billable hours to clients for the year totaled 8,000, consisting of: information systems services, 4,800; e-commerce consulting, 3,200.
- Administrative cost of $411,760 was (and continues to be) allocated to both services based on billable hours. These costs consist of staff support, $220,200; in-house computing, $155,000; and miscellaneous office charges, $36,560.
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:
|
|
E-Commerce Consulting
|
Information Systems Services
|
Total
|
|
Number of clients
|
65
|
245
|
310
|
|
Number of computer hours
|
2,300
|
3,600
|
5,900
|
|
Number of client transactions
|
820
|
680
|
1,500
|
1. Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. 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.
2. Using 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.