Instructions
Read the CMA Accounting Services case study and address the requirements that follow in your case analysis report.
CMA Accounting Services: Case study
CMA Accounting Services, based in Christchurch, provides three accounting services: financial accounting services (FAS), management accounting services (MAS), and tax accounting services (TAS). The firm, which bills $250 per hour for services performed, is in a very tight local labour market and is having difficulty finding quality staff. The staff labour cost per hour paid by CMA for professional staff time is $120. Selected information about the company follows.
(a) Billable hours to clients for the year totalled 10,000 hours, consisting of: FAS 4000 hours, MAS 3500 hours, and TAS 2500 hours.
(b) Administration costs of $684,000 were (and continues to be) allocated to all three services based on billable hours. These costs consist of staff support ($360,000), information systems ($272,800), and general office expenses ($51,200).
A recent analysis of staff support costs found a correlation with the number of clients served. Information services and general office expenses varied directly in line 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 three services:
|
FAS |
MAS |
TAS |
Total |
| Number of clients |
150 |
250 |
100 |
500 |
| Number of computer hours |
3000 |
3500 |
2300 |
8800 |
| Number of client transaction |
900 |
700 |
400 |
2000 |
You have recently been appointed as a management accountant of the firm and Jenny Mars, the firm's managing partner, has asked you to review and recommend whether the application of activity-based costing (ABC) concepts would be useful for the company. She has asked you to write a report for her to present to her board that addresses the following:
Question - Based on your work in (2) above: (a) Would you recommend the adoption of ABC? Explain your answer. (b) What does the ‘income per billing' percentage calculated under the ABC approach tell you about these three accounting services?