Question

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		$	147,000		$	213,000
Expenses:
Administrative support								44,000
Transportation, etc								35,360
Equipment								16,800
Profit							$	116,840

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	5
Traveling	Number of visits	90	170
Using equipment	Computer hours	700	700

Required:

a. Complete the income statement using activity-based costing and WCC’s three cost drivers. (Do not round intermediate calculations.)

b. Recompute the income statement using direct labor-hours as the only allocation base (220 hours for teen counseling; 490 hours for executive coaching). (Do not round intermediate calculations.)

Answer 1

a) Complete income statement using activity based costing

	Teen Counseling	Executive Coaching
Revenue	66000	147000
Expenses
Administrative support	44000*6/11 = 24000	20000
Transportation, etc	35360/160*90 = 19890	37570
Equipment	16800/1400*700 = 8400	8400
Profit	13710	121030

b) Complete income statement using direct labor-hours as the only allocation base

	Teen Counseling	Executive Coaching
Revenue	66000	147000
Expenses	96160/710*220 = 29796	66364
Profit	36204	80636