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For the past five years, Canax Consulting Ltd. has been running a consulting practice in which it provides two major services: general management consulting and
For the past five years, Canax Consulting Ltd. has been running a consulting practice in which it provides two major services: general management consulting and executive training seminars. The CFO is not quite sure that he is charging accurate fees for the different services Canax provides. He has recently read an article about activity-based costing that convinced him he could use ABC to improve the accuracy of his costing. He has gathered the following selected information concerning the consulting practice during the previous year: Overhead Activities Cost Pools Activities Cost Drivers Planning and review $ 1,000,000 120,000 hours Billable hours Research 150,000 400 journals Journals purchased General administration 1,800,000 600 clients Number of clients Building and equipment 360,000 2,400 square metres Square metres occupied Clerical 306,000 34 professionals Professional staff $3,616,000 In addition, the CFO gathered the following statistics for the two types of services provided to clients during the year: Management Consulting Executive Training Direct labour costs $1,800,000 $800,000 Billable hours 90,000 30,000 Journals purchased 280 150 Number of clients 240 360 Square metres 1,600 800 Professional staff 20 14 . Using ABC, what would the CFO's charge-out rate be? Note that he will continue to add the overhead to the direct labour costs per hour on a service basis and then double this amount to set an average hourly charge-out rate. Identify and discuss three ways in which ABC leads to more accurate product costs. Identify and discuss two limitations of ABC and how it would impact this Company
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