Using ABC to bill clients at a service firm (Learning Objective 2) Curtis & Company is an

Question:

Using ABC to bill clients at a service firm (Learning Objective 2)

Curtis & Company is an architectural firm specializing in home remodeling for pri¬ vate clients and new office buildings for corporate clients.

Curtis & Company charges customers at a billing rate equal to 135% of the client’s total job cost. A client’s total job cost is a combination of (1) professional time spent on the client ($65 per hour cost of employing each professional) and (2) operat¬ ing overhead allocated to the client’s job. Curtis allocates operating overhead to jobs based on professional hours spent on the job. Curtis estimates its five professionals will incur a total of 10,000 professional hours working on client jobs during the year.

All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, and so forth) can be assigned to the thiee activ¬ ities. Total activity costs, cost drivers, and total usage of those cost drivers are esti¬ mated as follows:

image text in transcribed

Amy Lee hired Curtis & Company to design her kitchen remodeling. A total of 24 professional hours were incurred on this job. In addition, Amy’s remodeling job required one of the professionals to travel back and forth to her house for a total of 125 miles. The blueprints had to be copied four times because Amy changed the plans several times. In addition, 1 8 hours of secretarial time were used lining up the subcontractors for the job.
1. Calculate the current operating overhead allocation rate per professional hour.
2. Calculate the amount that would be billed to Amy Lee given the current costing structure.
3. Calculate the activity cost allocation rates that could be used to allocate operat¬ ing overhead costs to client jobs.
4. Calculate the amount that would be billed to Amy Lee using ABC costing.
5. Which type of billing system is fairer to clients? Explain.