Determine the profitability of the firm information system

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Reference no: EM132657604

Grady and Associates performs a variety of activities related to information systems and e-commerce consulting in Toronto, Canada. The firm, which bills $164 per hour for services performed, is in a very tight local labor market and is having difficulty finding quality help for its overworked professional staff. The cost per hour for professional staff time is $74.

Selected information follows.

Billable hours to clients for the year totaled 8,400, consisting of information systems services, 5,040; e-commerce consulting, 3,360.
Administrative cost of $417,760 was (and continues to be) allocated to both services based on billable hours. These costs consist of staff support, $222,840; in-house computing, $157,000; and miscellaneous office charges, $37,920.A recent analysis of staff support costs found a correlation with the number of clients served. In-house computing and miscellaneous office charges varied directly with the number of computer hours logged and number of client transactions, respectively. A tabulation revealed the following data:

Information Systems Services E-Commerce Consulting Total

Number of clients                255    75 330
Number of computer hours 3740    2340    6080
Number of client transactions 720                                     840                                      1560

Question 1: Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. 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.

Question 2: Assume 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.

Reference no: EM132657604

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