Forrester and Cohen is a small accounting firm, managed by Joseph Cohen since th
ID: 464820 • Letter: F
Question
Forrester and Cohen is a small accounting firm, managed by Joseph Cohen since the retirement in December of his partner Brad Forrester. Cohen and his 3 CPAs together bill 620 hours per month. When Cohen or another accountant bills more than 155 hours per month, he or she gets an additional "overtime" pay of $63.20 for each of the extrahours: this is above and beyond the $4,900 salary each draws during the month. (Cohen draws the same base pay as his employees.) Cohen strongly discourages any CPA from working (billing) more than 255 hours in any given month. The demand for billable hours for the firm over the next 6 months is estimated below:
Month
Estimate of Billable Hours
Jan.
610
Feb.
490
Mar.
1010
Apr.
1210
May
650
June
570
Cohen has an agreement with Forrester, his former partner, to help out during the busy tax season, up to 255 hours in any given month if needed, for an hourly fee of $120. Cohen will not even consider laying off one of his colleagues in the case of a slow economy. He could, however, hire another CPA at the same salary, as business dictates.
a) Develop an aggregate plan for the 6-month period (enter your responses as whole numbers). Use regular time, then overtime, then Forrester, and then hire additional CPAs if needed.
Note: For the CPA column, only include Cohen, his 3 CPAs, and any new CPAs he may hire in your total. Do NOT include Forrester.
Month---
Estimate of Billable Hours---
CPAs---
Reg. time billable hours---
Reg. time cost---
"Overtime" hours---
"Overtime" cost---
Forrester hours---
Forrester cost
Jan.
?
?
?
?
$?
?
$?
Feb
Mar.
Apr.
May
June
b) Compute the cost of Cohen's plan of using overtime and Forrester.
The cost of Cohen's plan is ? (enter your response as a whole number).
c) Should the firm remain as is, with a total of _____ CPAs?
A.
The firm should not remain as it is.
B.
The firm should remain as it is.
C.
One would have to carefully examine the other 6 months to see if hiring is merited
Month
Estimate of Billable Hours
Jan.
610
Feb.
490
Mar.
1010
Apr.
1210
May
650
June
570
Explanation / Answer
Current CPAs = 4 (including Cohen)
Available regular working hours = 620/4 = 155 hours
Available overtime hours = 255 – 155 = 100 hours
Regular time Pay = $4,900
Overtime cost per hour = $63.20
Agreement with Forrester: If the requirement for a given month is more the 620+400 = 1020 hours, then pay for extra hours needed to Forrester at rate of $120 per hour. Hours limit is 255 hours beyond that recruit new CPA.
Month
Estimate of Billable Hours
CPAs
Reg. time billable hours
Reg. time cost
Extra time req.
"Overtime" hours
"Overtime" cost
Forrester hours
Forrester cost
Jan.
610
4
620
19600
0
0
0
0
0
Feb
490
4
620
19600
0
0
0
0
0
Mar
1010
4
620
19600
390
390
24648
0
0
Apr
1210
4
620
19600
590
400
25280
190
22800
May
650
4
620
19600
30
30
1896
0
0
Jun
570
4
620
19600
0
0
0
0
0
b.
Compute the cost of Cohen's plan of using overtime and Forrester.
The cost of Cohen's plan is ?
Cost = Regular time cost + Overtime Cost + Forrexter cost
Cost of plan = $117,600 + $51,824 + $ 22,800 = $192,224
c) Should the firm remain as is, with a total of _____ CPAs?
Option: The firm should remain as it is, as the requirement is not exceeding the forrester’s available time.
Month
Estimate of Billable Hours
CPAs
Reg. time billable hours
Reg. time cost
Extra time req.
"Overtime" hours
"Overtime" cost
Forrester hours
Forrester cost
Jan.
610
4
620
19600
0
0
0
0
0
Feb
490
4
620
19600
0
0
0
0
0
Mar
1010
4
620
19600
390
390
24648
0
0
Apr
1210
4
620
19600
590
400
25280
190
22800
May
650
4
620
19600
30
30
1896
0
0
Jun
570
4
620
19600
0
0
0
0
0
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