Howard Cooper, the president of Finch Computer Services, needs your help. He won

Question

Howard Cooper, the president of Finch 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:

Required:

Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 36,000 hours of services in 2019.

A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant’s analysis, if Finch charges customers $77 per hour, the firm can achieve 45,000 hours of services. Prepare a flexible budget using the consultant’s assumption.

The same consultant also suggests that if the firm raises its rate to $87 per hour, the number of service hours will decline to 31,000. Prepare a flexible budget using the new assumption.

Standard rate and variable costs Service rate per hour $ 82.00 Labor cost 37.00 Overhead cost 6.50 Selling, general, and administrative cost 4.00 Expected fixed costs Facility maintenance $ 520,000 Selling, general, and administrative 140,000

Explanation / Answer

Solution A:

Solution B:

Solution C:

Finch Computer Services Pro forma Income Statement Master Budget Particulars Amount Service Revenue (36000*$82) $2,952,000.00 Variable expenses: Labor cost $1,332,000.00 Overhead cost $234,000.00 Selling, general and administrative cost $144,000.00 Contribution $1,242,000.00 Fixed Costs: Facility maintenance $520,000.00 Selling, general and administrative cost $140,000.00 Net Income $582,000.00

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