Exercise 22-6A Using a flexible budget to accommodate market uncertainty Accordi
ID: 2443435 • Letter: E
Question
Exercise 22-6A Using a flexible budget to accommodate market uncertaintyAccording to its original plan, Katta Consulting Services Company would charge its customers for service at $200 per hour in 2006. The company president expects consulting services provided to customers to reach 40,000 hours at that rate. The marketing manager, however, argues that actual results may range from 35,000 hours to 45,000 hours because of market uncertainty. Katta’s standard variable cost is $90 per hour, and its standard fixed cost is $3,000,000.
Develop flexible budgets based on the assumptions of service levels at 35,000 hours, 40,000 hours, and 45,000 hours.
Explanation / Answer
Flexible Budget
VC Level (hours) of activity
Per Unit 35,000hrs. 40,000hrs. 45,000hrs.
Sales Revenue $200 $7,000,000 $8,000,000 $9,000,000
_______________________________________
Costs
Standard VC $90 $3,150,000 $3,600,000 $4,050,000
Fixed costs $3,000,000 $3,000,000 $3,000,000
Total costs $6,150,000 $6,600,000 $7,050,000
______________________________________
Net Income $850,000 $1,400,000 $1,950,000
=======================================
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.