Question

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Graitly and Associates pertorms a varisity of activd toition systems and e-commerce consulting in Tornto, Canada staff suppot 3180 000 n-oue souin 5136 400 and iscelianeous office charges, $25,600 conpute hours ogped and mumber of clent transactions revealed the lwng daa Cursuting Tota 254) Service 1,800 600 4400 ruity of the s nformation systerms and e-commarce activities expressing your answer both in dolars and as a percentage of Assume hat the mses acvity based cosing Deermine the prolitablaty of the frm's e-commerce and information systems 4Jelher Orady one f the s artners doen't care where his professionals spend their time becaune, as he noesmany ent paid the same ourly a Shoutd Grady s atitude change Your wer both in doars and as a percentage of acivity revenue Complete this question by entering your answers in the tabs below. Assue that the m uses traditional costing procedures, allocating total costs on the bass of bililable hours. Determine the profitablity of the firm's information systems and e-commerce activities, expressing your answer both in dollars and as a 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 200 2,600 E-Commerce Consulting Total 250 4,400 1,000 Number of clients Number of computer hours Number of client transactions 50 1,800 600 400 Required 2. Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firm's information systems and e-commerce activities, expressing your answer both in dollars and as a percentage cf activity revenue 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. 4. Jeffrey Grady, one of the firm's partners, doesn't care where his professionals spend their time because, as he notes, "many 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." Should Grady's attitude change?

Answer 1

2) Traditional Costin Total Administrative cost Total Billable hours Billable hours for Information system Billable hours for E-Commerce 342,000 5,000 3,100 1,900 Allocation of Cost using Billiable hours: Information system (342,000 x 3,100/5,000) $ E-Commerce (342,000 x 1,900/5,000) 212,040 129,960 Information system E-Commerce Consultin Billings Information system (3,100 x $125 E-Commerce Consulting (1,900 x $125 Total Billings Less: Professional staff cost Information system (3,100 x $45 E-Commerce Consulting (1,900 x $45 Less: Adminstration cost Income Profitability (Income/Billings) Information system (35,960 /387,500 E-Commerce Consulting (22,040/237,500 387,500 237,500 387,500 237,500 139,500 (85,500) (129,960) 22,040 (212,040) 35,960 9.28% 9.28% Total Billings Profitabili Income Information system E-Commerce Consultin 9.28% 9.28% 387,500 237,500 35,960 22,040

3) Allocation of Cost using Activity Based costin Step1: Calculation of Activity rate Activity Pool Activity Cost Driver Activity Rate [A/B] 720 lper client Staff support In-house computin Miscellaneous office charge Total 250 Number of Client 4,400 Computer hours 1,000 Client Transaction:s 180,000 136,400 25,600 342,000 31 lper Computer hours 25.6 per client transaction Step2: Allocation of Cost to the Information system and E-commerce consultin Activity Rate Information Technolo E-Commerce Activit Activit Total Costs Total Costs [A × B] 200 $ Staff support In-house computin Miscellaneous office charge Total 720 31 25.6 144,000 80,600 10,240 234,840 50 1,800 600 36,000 55,800 15,360 107,160 2,600 400

Step3: Calculation of Income Information system E-Commerce Consultin Billings Less: Professional staff cost Less: Administrative costs Income Profitability (Income/ Billings) Information system (13,160/387,500) E-Commerce Consulting (44,840/ 237,500 387,500$ (139,500) (234,840) 237,500 85,500 (107,160) 44,840 13,160$ 3.40% 18.88% Total Billings Profitabili Income Information system E-Commerce Consultin 3.40% 18.88% 387,500 237,500 13,160 44,840 4) Yes. Grady's should change the attitude because as the Professional cost are equal but the profitability of the E- commerce consulting was way more than the information system. Therefore should spend more time in e- commerce consulting