Grady and Associates performs a variety of activities related to information systems and e-commerce consulting in Toronto, Canada. The firm, which bills $125 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 $45. Selected information follows.
- Billable hours to clients for the year totaled 5,000, consisting of information systems services, 3,100; e-commerce consulting, 1,900.
- Administrative cost of $342,000 was (and continues to be) allocated to both services based on billable hours. These costs consist of staff support, $180,000; in-house computing, $136,400; and miscellaneous office charges, $25,600.
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:
Information Systems Services E-Commerce Consulting Total Number of clients 200 50 250 Number of computer hours 2,600 1,800 4,400 Number of client transactions 400 600 1,000
Required:
2. Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firmâs information systems and e-commerce activities, expressing your answer both in dollars and as a percentage of activity revenue.
3. Assume that the firm uses activity-based costing. Determine the profitability of the firmâs e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue.
4. Jeffrey Grady, one of the firmâs partners, doesnât care where his professionals spend their time because, as he notes, âmany clients have come to expect both services and we need both to stay in business. Also, information systems and e-commerce professionals are paid the same hourly rate.â Should Gradyâs attitude change?
Grady and Associates performs a variety of activities related to information systems and e-commerce consulting in Toronto, Canada. The firm, which bills $125 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 $45. Selected information follows.
- Billable hours to clients for the year totaled 5,000, consisting of information systems services, 3,100; e-commerce consulting, 1,900.
- Administrative cost of $342,000 was (and continues to be) allocated to both services based on billable hours. These costs consist of staff support, $180,000; in-house computing, $136,400; and miscellaneous office charges, $25,600.
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:
| Information Systems Services | E-Commerce Consulting | Total | |||||||||
| Number of clients | 200 | 50 | 250 | ||||||||
| Number of computer hours | 2,600 | 1,800 | 4,400 | ||||||||
| Number of client transactions | 400 | 600 | 1,000 | ||||||||
Required:
2. Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firmâs information systems and e-commerce activities, expressing your answer both in dollars and as a percentage of activity revenue.
3. Assume that the firm uses activity-based costing. Determine the profitability of the firmâs e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue.
4. Jeffrey Grady, one of the firmâs partners, doesnât care where his professionals spend their time because, as he notes, âmany clients have come to expect both services and we need both to stay in business. Also, information systems and e-commerce professionals are paid the same hourly rate.â Should Gradyâs attitude change?
