Wendy Chen established Windy City Coaching (WCC) to provide teencounseling and executive coaching services to its clients. WCCcharges a $300 fee per hour for each service. The revenues andcosts for the year are shown in the following income statement:

WINDY CITY COACHING Income Statement
	Teen Counseling	Executive Coaching	Total
Revenue	$66,000	$135,000	$201,000
Expenses:
Administrative support			40,000
Transportation, etc.			36,000
Equipment			20,000
Profit			$105,000

WCC has kept good records of the following data for costallocation purposes:

		Activity Level
Activity	Cost Driver	Teen Counseling	Executive Coaching
Providing administrative support	Number of clients	6	4
Traveling	Number of visits	100	150
Using equipment	Computer hours	900	700

Required

Complete the income statement using activity-based costing andWCC’s three cost drivers.

Recompute the income statement using direct labor-hours as theonly allocation base (220 hours for teen counseling; 450 hours forexecutive coaching).

How might WCC’s decisions regarding pricing or dropping aservice be altered if Wendy were to allocate all overhead costsusing direct labor-hours?

Under what circumstances would the labor-based allocation andactivity-based costing (using Wendy’s three cost drivers) result insimilar profit results?

A local nonprofit charity is looking for worthy causes tosupport through financial grants. A primary criterion for supportis financial need. Wendy is thinking of applying for support forthe teen counseling program. Which allocation method would give herthe best chance of winning a grant? Would it be ethical for Wendyto report the income using this method in her application?