Answer to (a) | ||||||
Statement showing profit in each service when expenses are allocated on the basis direct labour hours | ||||||
Tax Preparation | Consulting | Total | ||||
Revenue (a) | $ 1,30,000 | $ 2,70,000 | $ 4,00,000 | |||
Less: expenses | ||||||
Secretarial Support | 27300 | 56700 | $ 84,000 | |||
Supplies | 23400 | 48600 | $ 72,000 | |||
Computer Costs | 15600 | 32400 | $ 48,000 | |||
Total expenses | 66300 | 137700 | $ 2,04,000 | |||
$ - | ||||||
Profit (a-b) | $ 63,700 | $ 1,32,300 | $ 1,96,000 | |||
Direct labour hour | 1300 | 2700 | ||||
Profit per labour hour | $ 49 | $ 49 | ||||
Answer to (b) | ||||||
Statement showing profit in each service when expenses are allocated on the basis of given cost drivers | ||||||
Tax Preparation | Consulting | Total | ||||
Revenue (a) | $ 1,30,000 | $ 2,70,000 | $ 4,00,000 | |||
Less: expenses | ||||||
Secretarial Support | $ 50,400 | $ 33,600 | $ 84,000 | |||
Supplies | $ 28,800 | $ 43,200 | $ 72,000 | |||
Computer Costs | $ 30,000 | $ 18,000 | $ 48,000 | |||
Total expenses | $ 1,09,200 | $ 94,800 | $ 2,04,000 | |||
Profit (a-b) | $ 20,800 | $ 1,75,200 | $ 1,96,000 | |||
Direct labour hour | $ 1,300 | $ 2,700 | ||||
Profit per labour hour | $ 16.00 | $ 64.89 | ||||
Answer to part ( c) | ||||||
If Mike were to use analysis pointed in part (b) then it would choose consulting over tax preparation because profit per labour hour is greater in consulting as compared to tax preparation. If Mike uses analysis pointed in part (a), then he is neutral in choosing any of the service. Profit per labour hour is same in all both the activities. | ||||||
Answer to (d) | ||||||
While using analysis pointed in part (a), i.e dividing all the expenses on the basis of direct labour hours , Mike is neutral in preferring any of the one service over other.It shows labour are working in the both the service with same efficiency. With using analysis under part (b), he choose consulting over tax preparation.Analysis under part (b), gives more realistic results and it shows how tax preparation service is taking up all the costs in the organisation with little room left for profits. It also provides a base that we should try to minimise the expense in each department to generate more profits. |
please do C and D 1. Mike K. provides consulting and tax preparation services to clients....
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