II. Altechikom Inc. is a young company founded in 20x8 by ambitious professionals graduated from New Century University. The company provides services related to e- commerce consulting and information system. Currently, the company is facing difficulties with finding quality help for its overworked professional staff and currently is in a tight local labor market. The firm currently bills $140 per hour for their professional services performed, cost per hour for professional staff time is SO. Selected information follows: Billable hours E-commerce consulting 2400 Information system services 3600 Total 6000 Staft support $207.000 In-house computing $145,000 Miscellaneous office $29,760 | Total Administrative cost $381,760 Administrative cost of $381,760 was (and continues to be) allocated to both services based on billable hours. 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 followingdata: Information E-Commerce Systems Consulting Services Total Number of clients 60 240 300 Number of computer hours 2,100 2,900 5,000 Number of client transactions 1,200 Required: 1. Activity-based costing (ABC) is said to result in improved costing accuracy when compared with traditional costing procedures. Briefly explain how this improved accuracy is attained. 2. Suppose the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firm's e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue. 720 480 Continued next page 3. Repeat requirement (2), using activity-based costing, 4. Adam Smith, one of the firm's partners, doesn't 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 Smith's attitude change? Explain. 5. Is an aggressive expansion of either service currently desirable? Briefly discuss, citing data. II. Altechikom Inc. is a young company founded in 20x8 by ambitious professionals graduated from New Century University. The company provides services related to e- commerce consulting and information system. Currently, the company is facing difficulties with finding quality help for its overworked professional staff and currently is in a tight local labor market. The firm currently bills $140 per hour for their professional services performed, cost per hour for professional staff time is SO. Selected information follows: Billable hours E-commerce consulting 2400 Information system services 3600 Total 6000 Staft support $207.000 In-house computing $145,000 Miscellaneous office $29,760 | Total Administrative cost $381,760 Administrative cost of $381,760 was (and continues to be) allocated to both services based on billable hours. 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 followingdata: Information E-Commerce Systems Consulting Services Total Number of clients 60 240 300 Number of computer hours 2,100 2,900 5,000 Number of client transactions 1,200 Required: 1. Activity-based costing (ABC) is said to result in improved costing accuracy when compared with traditional costing procedures. Briefly explain how this improved accuracy is attained. 2. Suppose the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firm's e-commerce and information systems activities, expressing your answer both in dollars and as a percentage of activity revenue. 720 480 Continued next page 3. Repeat requirement (2), using activity-based costing, 4. Adam Smith, one of the firm's partners, doesn't 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 Smith's attitude change? Explain. 5. Is an aggressive expansion of either service currently desirable? Briefly discuss, citing data
