Provide

a Compute the total cost of the two projects: Garden A and Garden B, using: i the existing costing system adopted by Senior; and ii activity-based costing. b Comment on the profitability of the two projects using the existing costing system and also activity-based costing and provide recommendations to improve profitability. c Discuss whether activity-based costing is suitable for Senior Design Ltd.

Senior Design Ltd (Senior) is a giant interior design firm that provides professional services to clients including home decoration design, construction administration and furnishing. Many new firms are participating in the design industry. Customers are particularly sensitive to the price. The firm's costing system includes only labour and overhead costs. Senior categorizes its labour cost into professional and "back-office support'. These labour costs are allocated to design projects on the basis of hours worked by the professional and back- office staff according to the respective labour rates. The allocation base of overheads to projects is total labour hours worked. In order to better evaluate the profitability of each design project, the firm is considering implementation of an activity based costing (ABC) system to allocate overheads. Senior identified the following overhead activities, cost drivers and budgets: Activity Cost driver Budget $ Planning Number of planning meetings 200.000 Site scope Number of site visits 600,000 Construction administration and furnishing Number of work orders 550.000 Back-office support Back-office labour hours 150,000 Professional staff costs $ 2,000,000 Back-office staff costs $ 800.000 Professional staff hours 3,200 hours Back-office staff hours 5,000 hours Number of planning meetings 400 Number of site visits 1,000 Number of work orders 1,000 The following are data relating to two projects completed by Senior: Garden A Garden B Contract service fee (5) 280,000 450,000 Professional labour hours 300 500 Back-office labour hours 85 90 Number of planning meetings 6 10 Number of site visits 10 120 Number of work orders 20 90