Question

Wendy Chen established Windy City Coaching (WCC) to provide teen counseling and executive coaching services to its clients. WCC charges a $300 fee per hour for each service. The revenues and costs for the year are shown in the following income statement.

WINDY CITY COACHING
Income Statement
	Teen Counseling			Executive Coaching			Total
Revenue	$	66,000		$	120,000		$	186,000
Expenses:
Administrative support								40,000
Transportation, etc								33,880
Equipment								18,200
Profit							$	93,920

WCC has kept good records of the following data for cost allocation purposes.

		Activity Level
Activity	Cost Driver	Teen Counseling	Executive Coaching
Providing administrative support	Number of clients	6	4
Traveling	Number of visits	100	120
Using equipment	Computer hours	800	500

Required:

a. Complete the income statement using activity-based costing and WCC’s three cost drivers.

Complete the income statement using activity-based costing and WCC’s three cost drivers. (Do not round intermediate calculations.)

	Account Teen Counseling Executive Coaching Total Revenue $66,000 $120,000 $186,000 Expenses: Administrative support 40,000 Transportation, etc 33,880 Equipment 18,200 Profit $93,920

b. Recompute the income statement using direct labor-hours as the only allocation base (240 hours for teen counseling; 380 hours for executive coaching).

Recompute the income statement using direct labor-hours as the only allocation base (240 hours for teen counseling; 380 hours for executive coaching). (Do not round intermediate calculations and round your final answers to the nearest whole dollar.)

	Account Teen Counseling Executive Coaching Total Revenue $66,000 $120,000 $186,000 Expenses 92,080 Profit $93,920

Answer 1

Account Teen Counseling $66,000 Executive Coaching Total $120,000 $186,000 Revenue Expenses: Administrative support Transportation Equipment Profit $24.000 $15.400 $11.200 $15,400 $16,000 $18.480 $7,000 $78,520 $40,000 $33.880 $18.200 $93,920 Workings: Activity Costs Cost Driver Providing administrative support Traveling Using equipment Cost Driver Rate $4,000 $154 S14 $40,000 Number of clients (10 clients) $33,880 Number of visits (220 visits) $18,200 Computer hours (1.300 hrs.) b) Account Revenue Expenses Profit Teen Counseling $66,000 $35.644 $30,356 Executive Coaching Total $120,000 $186,000 $56,436 $92.080 $63,564 $93,920 workings: Direct labor-hours = Total revenue / Fee per hour = $186.000 / $300 620 hours Per labor-hour = $92,080 / 620 hrs. $148.5161 per hour Teen Counseling = 240 hrs. * $148.5161 = Executive Coaching = 380 hrs. * $148.5161 = $35,644 $56,436