Wendy Chen established Windy City Coaching (WCC) to provide teen counseling and executive coaching services to its clients. WCC charges a $300 fee per hour for each service. The revenues and costs for the year are shown in the following income statement: WINDY CITY COACHING Income Statement Teen Counseling Executive Coaching Total Revenue $66,000 $135,000 $201,000 Expenses: Administrative support 40,000 Transportation, etc. 36,000 Equipment 20,000 Profit $105,000 Page 360 WCC has kept good records of the following data for cost allocation purposes: Activity Level Activity Cost Driver Teen Counseling Executive Coaching Providing administrative support Number of clients 6 4 Traveling Number of visits 100 150 Using equipment Computer hours 900 700 Required

Complete the income statement using activity-based costing and WCCs three cost drivers.

Recompute the income statement using direct labor-hours as the only allocation base (220 hours for teen counseling; 450 hours for executive coaching).

How might WCCs decisions regarding pricing or dropping a service be altered if Wendy were to allocate all overhead costs using direct labor-hours?

Under what circumstances would the labor-based allocation and activity-based costing (using Wendys three cost drivers) result in similar profit results?

A local nonprofit charity is looking for worthy causes to support through financial grants. A primary criterion for support is financial need. Wendy is thinking of applying for support for the teen counseling program. Which allocation method would give her the best chance of winning a grant? Would it be ethical for Wendy to report the income using this method in her application?