Mike Kyekyeku Is a Sole Proprietorship That Provides Consulting and Tax

Essay

Mike Kyekyeku is a sole proprietorship that provides consulting and tax preparation services to its clients.Mike charges a fee of $100 per hour for each service and can devote a maximum of 4,000 hours annually to his clients.He reported the following revenues and expenses for 2008:

Being an accountant, Mike kept good records of the following data for 2008:

(i).

(ii).

Required:

a. Should Mike emphasize one service more than the other if Mike were to allocate all the overhead costs using direct-labours as the only overhead cost driver (1,300 for Tax and 2,700 for Consulting)? Support your decision with the relevant calculations and/or analysis.
b. Identify each of the three cost drivers as either unit-level, batch-level, product-level, customer-level, or organization-sustaining.
c. How might Mike's product/service emphasis decision in Part a above be altered if he were to allocate all the overhead costs using activity-based costing and the three cost drivers, that is, number of clients, number of transactions with clients, and computer hours? Show all your supporting calculations and/or analysis, including any necessary explanation.