Lim & Joyce Consulting provides consulting services related to project management and analytical support. It operates...

Lim & Joyce Consulting provides consulting services related to project management and analytical support. It operates in a very tight local labour market and is having difficulty finding quality staff. The firm bills $350 per hour for services performed. The labour cost per hour paid by Lim & Joyce Consulting for professional staff time is $135.

Additional information is provided as follows:

• Billable hours to clients for the year ended totalled 10 000, consisting of: analytical support services, 3 800 hours; project management consulting services, 6 200 hours.

• Administrative costs of $1 026 000 is allocated to both consulting services based on billable hours.

These costs consist of staff support, $540 000; in-house computing, $409 200; and miscellaneous office charges, $76 800. A recent analysis of staff support costs found a correlation with the number of clients served. Inhouse computing and miscellaneous office charges varied directly with the number of computer hours logged and number of client transactions, respectively. The following table shows the number of clients, computer hours and client transactions for the analytical support and project management consulting services:

	Analytical Support	Project Management	Total
Number of clients	100	400	500
Number of computer hours	3600	5200	8800
Number of client transactions	1200	800	2000

Respond to the following questions:

i. Assume that the firm uses traditional costing procedures, allocating total costs on the basis of billable hours. Determine the profitability of the firm’s analytical support and project management consulting services, expressing your answer both in dollars and as a percentage of revenues for each consulting service.

ii. Repeat requirement i, using activity-based costing.

iii. Activity-based costing (ABC) is said to result in improved costing accuracy when compared with traditional costing procedures. Briefly explain how this improved accuracy is attained. ( Identify at least two key points and use the data from calculations made in points i and ii above to support your argument).

Expert Solution

ekkarill92 answered 2 years ago

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