Nathan Jones is a sole proprietorship that provides consulting and tax preparation services to its clients. Nathan charges a fee of $100 per hour for each service and can devote a maximum of 4,000 hours annually to his clients. He reported the following revenues and expenses for 2019:

Being an accountant, Nathan kept good records of the following data for 2019:

(i). Revenue:

Tax preparation	$130,000
Consulting	270,000
Total	$400,00

Required:

a. Should Nathan emphasize one service more than the other if Nathan were to allocate all the overhead costs using direct labour hours as the only overhead cost driver (1,300 for Tax and 2,700 for Consulting)? Support your decision with the relevant calculations and/or analysis.

b. How might Nathan's product/service emphasis decision in Part a above be altered if he were to allocate all the overhead costs using activity-based costing and the three cost drivers, that is, number of clients, number of transactions with clients, and computer hours? Show all your supporting calculations and/or analysis, including any necessary explanation.

$400,000 Revenue Expenses (All overhead costs): Administrative support Supplies Computer costs Net income (loss) $84,000 72,000 48,000 204,000 $196,000 (ii). ACTIVITY LEVEL Tax Consulting 72 48 Total 120 Overhead Cost Cost Driver Administrative Number of clients support Supplies Transactions with clients Computer costs Computer hours 200 300 500 1,000 600 1,600