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Clark and Shiffer LLP perform activities related to e-commerce consulting and information systems in Vancouver, British Columbia. The firm, which bills $172 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 $82. Selected information follows.
Billable hours to clients for the year totaled 9,200, consisting of: information systems services, 5,520; e-commerce consulting, 3,680.
Administrative cost of $429,760 was (and continues to be) allocated to both services based on billable hours. These costs consist of staff support, $228,120; in-house computing, $161,000; and miscellaneous office charges, $40,640.
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:
E-Commerce Consulting Information Systems Services Total Number of clients 95 275 370 Number of computer hours 2,420 4,020 6,440 Number of client transactions 880 800 1,680
2. Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firms e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue. (Do not round intermediate calculations. Round "Profitability" to 2 decimal places.)
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3. Using activity-based costing, determine the profitability of the firms e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue. (Round intermediate calculations and final answers to 2 decimal places.)
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4. Stephen Shiffer, one of the firms partners, doesnt 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 Shiffers attitude change?
rev: 02_17_2014_QC_45352, 09_15_2015_QC_CS-25336, 11_14_2015_QC_
Answer & Explanation
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