The solving process of question 2

Question 2 (30 marks) Home Design Ltd ('Home') is an interior design firm that provides professional services to clients including home decoration design, construction administration and furnishing The firm's costing system includes only labor and overhead costs. Home categorized its labor cost into 'professional' and back-office support'. These labor costs are allocated to design projects on the basis of hours worked by the professional and back-office staff according to the respective labor rates. The allocation base of overheads to projects is total labor 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. Home identified the following overhead activities, cost drivers and budgets Activity Cost Driver Budget 200,000 600,000 Planning Site scope Construction administration and furnishing Back-office support Number of planning meeting Number of site visit Number of work order Back-office labor hour 550,000 150,000 Professional staff cost Back-office staff cost Professional staff hour Back-office staff hour Number of planning meeting Number of site visit Number of work order $ 2,000,000 $ 800,000 3,200 hours 5,000 hours 400 1,000 1,000 The following are data relating to two projects completed by Home: Monterey Oasis