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

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?