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 3,740 2,340 6,080
Number of client transactions 720 840 1,560

Required:
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.

Grady and Associates

Profitability based on traditional costing, using billable hours:

                                         Information           E-Commerce

                                      Systems Services      Consulting          Total

Service Revenue              $826,560               $551,040        $1,377,600

Administrative cost            250,639                  167,093             417,732

Profit ($)                            $575,921               $383,947          $959,868

Profit (%)                             69.68%                   69.68%              69.68%

Explanation:

a) Data and Calculations:

Services performed = $164 per hour

Information systems services 5,040

E-commerce consulting          3,360

Billable hours to clients          8,400 hours

Predetermined rate = $417,760/8,400 = $49.73 per hour

Administrative cost = $417,760 consisting of:

Staff support, $222,840   number of clients served

In-house computing, $157,000  number of computer hours logged

Miscellaneous office charges, $37,920  number of client transactions

                                         Information           E-Commerce

                                      Systems Services      Consulting          Total

Number of clients                     255                        75                  330

Number of computer hours  3,740                   2,340               6,080

Number of client transactions 720                      840                1,560

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x=3

step-by-step explanation:

this is really simple i saw that there was only one term (5x) and thought if that was 15 what would i have to multiply everything else to get it there? well if 5x became 15 then x would have to be 3 so plug the 3 in the x for the other equations and you get 15 for the other ones. so there you go. : )