I'm having trouble determining the profitability of the firm's information systems services and e-commerce consulting activities in problem 3. Could you help me solve this problem? I'm confused by the activity-based costing system and need to find the total billings, income, and profitability percentage. 3. Assume that the firm uses activity-based costing. Determine the profitability of the firm's information systems and e-commerceactivities, expressing your answer both in dollars and as a percentage of activity revenue.4. Jeffrey Grady, one of the firm's partners, doesn't care where his professionals spend their time because, as he notes, “manyclients have come to expect both services and we need both to stay in business. Also, information systems and e-commerceprofessionals are paid the same hourly rate." Should Grady's attitude change?Complete this question by entering your answers in the tabs below.Required 2Required 3Required 4Assume that the firm uses activity-based costing. Determine the profitability of the firm's information systems and e-commerce activities, expressing your answer both in dollars and as a percentage of activity revenue. (Round intermediatecalculations and final answers to 2 decimal places.)DepartmentTotal BillingsIncomeProfitabilityInformation systems services%E-commerce consulting%Required 2Required 4 > Check my workProblem 5-50 Activity-Based Costing; Analysis of Operations (LO 5-1, 5-2, 5-4, 5-5, 5-7, 5-10)Grady and Associates performs a variety of activities related to information systems and e-commerce consulting in Toronto, Canada.The firm, which bills $168 per hour for services performed, is in a very tight local labor market and is having difficulty finding qualityhelp for its overworked professional staff. The cost per hour for professional staff time is $78. Selected information follows.Billable hours to clients for the year totaled 8,800, consisting of information systems services, 5,280; e-commerce consulting,3,520.• Administrative cost of $423,760 was (and continues to be) allocated to both services based on billable hours. These costs consistof staff support, $225,480; in-house computing, $159,000; and miscellaneous office charges, $39,280.A recent analysis of staff support costs found a correlation with the number of clients served. In-house computing and miscellaneousoffice charges varied directly with the number of computer hours logged and number of client transactions, respectively. Atabulation revealed the following data:InformationE-CommerceSystems Services265ConsultingTotalNumber of clients85350Number of computer hoursNumber of client transactions3,8802,3806,2601,620760860Required:2. Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine theprofitability of the firm's information systems and e-commerce activities, expressing your answer both in dollars and as a percentageof activity revenue.3. Assume that the firm uses activity-based costing. Determine the profitability of the firm's information systems and e-commerceactivities, expressing your answer both in dollars and as a percentage of activity revenue.4. Jeffrey Grady, one of the firm's partners, doesn't care where his professionals spend their time because, as he notes, “manyclients have come to expect both services and we need both to stay in business. Also, information systems and e-commerceprofessionals are paid the same hourly rate." Should Grady's attitude change?

Activity based costing is a method and type of costing, in which all indirect costs and indirect…

I'm having trouble determining the profitability of the firm's information systems services and e-commerce consulting activities in problem 3. Could you help me solve this problem? I'm confused by the activity-based costing system and need to find the total billings, income, and profitability percentage.

I'm having trouble determining the profitability of the firm's information systems services and e-commerce consulting activities in problem 3. Could you help me solve this problem? I'm confused by the activity-based costing system and need to find the total billings, income, and profitability percentage.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter10: Accounting Systems For Manufacturing Operations

Section: Chapter Questions

Problem 10.4.3C: Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost...

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Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What did the engineer mean about the large overhead rate being a disadvantage when plating bids and seeking new business?
Exercise 9-45 (Algo) Activity-Based Costing in a Service Environment (LO 9-3, 4, 5) Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believes that the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty employees worked a total of 39,000 hours last year, 25,000 on residential jobs and 14,000 on commercial jobs. Wages were $15 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Because of increased competition for commercial accounts, EL&P can charge $32 per hour for residential work, but only $26 per hour for commercial work. Required: a. If overhead for the year was $125,550, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round…
Comprehensive Activity-Based Costing Exercise [LO7–2, LO7–3, LO7–4, LO7–5] A dvanced Products Corporation has supplied the following data from its activity-based costing system: Overhead Costs Wages and salaries . . . . . . . . . . . . . $300,000 Other overhead costs . . . . . . . . . . . 100,000 Total overhead costs . . . . . . . . . . . . $400,000 Activity Cost Pool Activity Measure Total Activity for the Year Supporting direct labor . . . . . . . . . . . . . Number of direct labor-hours 20,000 DLHs Order processing . . . . . . . . . . . . . . . . . . Number of customer orders 400 orders Customer support . . . . . . . . . . . . . . . . . Number of customers 200 customers Other . . . . . . . . . . . . . . . . . . . . . . . . . . . This is an organization sustaining activity Not applicable Distribution of Resource Consumption Across Activities Supporting Direct Labor Order Processing Customer Support Other Total Wages and salaries . . . . . 40% 30% 20% 10% 100% Other overhead costs . .…
7-7 Calculating traditional and ABC overhead rates (LO 2) Eric Parker has been studying his department's profitability reports for the past six months. He has just completed a managerial accounting course and is beginning to question the company's approach to allocating overhead to products based on machine hours. The current department overhead budget of $1,140,000 is based on 40,000 machine hours. In an initial analysis of overhead costs, Eric has identified the following activity cost pools. Cost Pool Expected Cost Expected Activities Product assembly $ 600,000 40,000 machine hours Machine setup and calibration 320,000 2,000 setups Product inspection 90,000 1,500 batches Raw materials storage 130,000 500,000 pounds $1,140,000 Required a.Calculate the company's overhead rate based on machine hours. b.Calculate the company's overhead rates using the proposed activity-based costing pools.
7. ACTIVITY DRIVERS Cut It Up, Inc., is a manufacturer of wooden cutting boards that are sold through a chain of kitchen stores. For years, the company has allocated overhead based on total machine hours. A recent assessment of over- head costs has shown that these costs are now in excess of 40 percent of the company’s total costs. As an attempt to better control overhead, Cut It Up is adopting an activity-based costing system. Each cut- ting board goes through the following processes: a. Cutting—Boards are selected from inventory and are cut to the required width and length. Imper- fections in boards (e.g., knots and cracks) are identified and removed. b. Assembly—Cut wooden pieces are laid out on clamps, a layer of glue is applied to each piece, and the glued pieces are clamped together until the glue sets. c. Shaping—Once the glue has set, the boards are sent to the shaping process, where they are cut into specific shapes. d. Sanding—After being shaped, the cutting boards must be…
PROBLEM 1 FIGHTING Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data: H16Z P25P Direct materials per unit P10.20 P50.50 Direct labor per unit P8.40 P25.20 Direct labor-hours per unit 0.40 1.20 Annual production 30,000 10,000 The company’s estimated total manufacturing overhead for the year is P1,464,480 and the company’s estimated total direct labor-hours for the year is 24,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Estimated Overhead Cost Supporting direct labor (DLHs) P 552,000 Setting…
5-26 Activity-based costing, manufacturing. Decorative Doors, Inc., produces two types of doors, interior and exterior. The company’s simple costing system has two direct-cost categories (materials and labor)and one indirect-cost pool. The simple costing system allocates indirect costs on the basis of machinehours. Recently, the owners of Decorative Doors have been concerned about a decline in the market sharefor their interior doors, usually their biggest seller. Information related to Decorative Doors production forthe most recent year follows:Interior ExteriorUnits sold 3,200 1,800Selling price $ 125 $ 200Direct material cost per unit $ 30 $ 45Direct manufacturing labor cost per hour $ 16 $ 16Direct manufacturing labor-hours per unit 1.50 2.25Production runs 40 85Material moves 72 168Machine setups 45 155Machine-hours 5,500 4,500Number of inspections 250 150The owners have heard of other companies in the industry that are now using an activity-based costingsystem and are curious how…
6. Make-or-Buy, Traditional and ABC Analysis Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,600 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for $70 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Direct materials $45.00 Direct labor 16.00 Variable overhead 4.00 Fixed overhead 40.00 Prior to making a decision, the company’s CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups—$1,180 each (The setups would be avoided, and total spending could be reduced by $1,180 per setup.) One half-time inspector is needed. The…
Exercise 9-47 (Static) Activity-Based versus Traditional Costing-Ethical Issues (LO 9-3, 4, 5) 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 TeenCounseling ExecutiveCoaching 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 TeenCounseling ExecutiveCoaching Providing administrative support Number of clients 6 4 Traveling Number of visits 100 150 Using equipment Computer hours 900 700 Required: a.…
Exercise 9-31 (Algo) Reported Costs and Decisions (LO 9-1) McNulty, Inc., produces desks and chairs. A new CFO has just been hired and announces a new policy that if a product cannot earn a margin of at least 15 percent, it will be dropped. The margin is computed as product gross profit divided by reported product cost. Manufacturing overhead for year 1 totaled $880,000. Overhead is allocated to products based on direct labor cost. Data for year 1 show the following. Chairs Desks Sales revenue $ 1,001,000 $ 2,469,600 Direct materials 598,000 940,000 Direct labor 120,000 430,000 Required: a-1. Based on the CFO's new policy, calculate the profit margin for both chairs and desks. a-2. Which of the two products should be dropped? b. Regardless of your answer in requirement (a), the CFO decides at the beginning of year 2 to drop the chair product. The company cost analyst estimates that overhead without the chair line will be $790,000. The…
7-8 Calculating product costs using activity-based costing (CIMA adapted) (LO 2) Wieters Industries manufactures several products including a basic case for a popular smartphone. The company is considering adopting an activity-based costing approach for setting its budget. The company's production activities, budgeted activity costs, and cost drivers for the coming year are as follows. Activity Activity Overhead $ Cost Driver Cost DriverQuantity Machine setup $ 200,000 # of setups 800 Inspection 120,000 # of quality tests 400 Materials receiving 252,000 # of purchase orders 1,800 The budgeted data for smartphone case production are as follows. Direct materials $2.50 per unit Direct labor $0.54 per unit Number of setups 92 Number of quality tests 400 Number of purchase orders 50 Production 15,000 units Required a.Calculate the activity rate for each cost pool. b.Calculate the activity-based unit cost of the smartphone case.
Exercise 9-43 (Algo) Activity-Based versus Traditional Costing (LO 9-4, 5, 6) Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,212,000 based on production of 350,000 handheld consoles and 110,000 home consoles. Direct labor and direct materials costs were as follows. Handheld Home Total Direct labor $ 1,125,000 $ 390,000…