Grady and Associates performs a variety of activities relate

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				1,710

Solution

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