Howard Cooper, the president of Rooney Computer Services, needs your help. He wo

Question

Howard Cooper, the president of Rooney Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2019: Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost $ 80.00 39.00 6.80 3.30 Expected fixed costs Facility maintenance Selling, general, and administrative $521,000 140,000 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 42,000 hours of b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can services in 2019. achieve. According to the consultant's analysis, if Rooney charges customers $75 per hour, the firm can achieve 47,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same consultant also suggests that if the firm raises its rate to $85 per hour, the number of service hours will decline to 36,000. Prepare a flexible budget using the new assumption

Explanation / Answer

a) Rooney Computer Services

Pro Forma Income Statement

Master Budget (Amounts in $)

b) Rooney Computer Services

Pro Forma Income Statement

Flexible Budget (Amounts in $)

c)   Rooney Computer Services

Pro Forma Income Statement

Flexible Budget (Amounts in $)

Service Revenue (42,000 hrs*$80 per hour) (A) 3,360,000 Variable Costs: Labor Cost (42,000 hrs*$39.00) 1,638,000 Overhead Cost (42,000 hrs*$6.80) 285,600 Selling, General, and Administrative Cost (42,000 hrs*$3.30) 138,600 Total Variable Costs (B) 2,062,200 Contribution Margin (C = A-B) 1,297,800 Fixed Costs: Facility Maintenance 521,000 Selling, General, and Administrative Cost 140,000 Total Fixed Costs (D) 661,000 Net Income (C-D) 636,800

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