Hello, I would like to verify the work was done correctly, could someone please
ID: 362443 • Letter: H
Question
Hello,
I would like to verify the work was done correctly, could someone please check over my information?
Refer to the CPA firm in Problem 13.20. In planning for next year, Cohen estimates that billable hours will increase by 10% in each of the 6 months. He therefore proceeds to hire a fifth CPA. The same regular time, overtime, and outside consultant (i.e., Forrester) costs still apply.
a) Develop the new aggregate plan and compute its costs.
Cost with 4 CPA’s 1st plan
MONTH
ESTIMATE OF
BILLABLE HOURS
capacity
Extra Hours
Cost
5000*4
Overtime
Overtime
Forre-ster
Forrester
Total cost
Jan.
600
640
-40
20,000
0
0
0
0
20,000
Feb.
500
640
-140
20,000
0
0
0
0
20,000
Mar.
1,000
640
360
20,000
320
320-62.50=
20,000
360-320=
40
5,000
45,000
Apr.
1,200
640
560
20,000
320
320-62.50=
20,000
560-320=240
30,000
70,000
May
650
640
10
20,000
10
10*62.5=
625
0
0
20,265
June
590
640
-50
20,000
0
0
0
0
20,000
Total
195,625
Cost with the 5th CPA 2nd plan
MONTH
ESTIMATE OF
BILLABLE HOURS
capacity
Extra Hours
Cost
Overtime
Forrester
Total cost
Jan.
660
800
-140
25,000
0
0
25,000
Feb.
550
800
-250
25,000
0
0
25,000
Mar.
1,100
800
300
25,000
18750
0
43,750
Apr.
1,320
800
520
25,000
25000
15000
65,000
May
715
800
-85
25,000
0
0
25,000
June
649
800
-151
25,000
0
0
25,000
Total
208,750
b) Comment on the staffing level with five accountants. Was it a good decision to hire the additional accountant?
MONTH
ESTIMATE OF
BILLABLE HOURS
capacity
Extra Hours
Cost
5000*4
Overtime
Overtime
Forre-ster
Forrester
Total cost
Jan.
600
640
-40
20,000
0
0
0
0
20,000
Feb.
500
640
-140
20,000
0
0
0
0
20,000
Mar.
1,000
640
360
20,000
320
320-62.50=
20,000
360-320=
40
5,000
45,000
Apr.
1,200
640
560
20,000
320
320-62.50=
20,000
560-320=240
30,000
70,000
May
650
640
10
20,000
10
10*62.5=
625
0
0
20,265
June
590
640
-50
20,000
0
0
0
0
20,000
Total
195,625
Explanation / Answer
Calculation in both the plans are correct, except that cost of Forrester in April in both the plans is wrong.
In the first plan, Forrester cost in April should be equal to 5000 (for 160 hours) plus 80*62.5 = 5000 for 80 hours overtime. Total = 10000. In the table, you have written 30,000 which is incorrect.
In the second plan, Forrester cost should be = 5000 (for 120 hours) you have written 15000, which is incorrect.
Total cost of first plan = $ 175,625
Total cost of second plan = $ 198,750
b) Total cost of the plan increased with hiring the fifth CPA. Therefore, it was not a good decision to hire the additional accountant.
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