Grady and associates performed various 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 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, 1900. 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 number of computer hours logged and number of client transactions, respectively. A tabulation revealed the following data:

Information system service E-commerce Consulting Total

Number of Clients .. 200 50 250

Number of computer hours 2,600 1,800 4,400

Number of client transactions 400 600 1,000

Required:

1. Assume that the firm uses traditional procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firms information systems and e-commerce activities, expressing your answer both in dollars and as a percentage of activity revenue.

2. Repeat requirement 2, using activity-based costing.