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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 1: Standard rate and variable costs Service rate per hour Labor cost Overhead cost. Selling, general, and administrative cost Expected fixed costs. Facility maintenance Selling, general, and administrative $ 62.00 29.00 5.55 3.40 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 28,000 hours of services in Year 1. $ 316,000 121,000 b. 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 $57 per hour, the firm can achieve 31,000 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 $67 per hour, the number of service hours will decline to 25,000. Prepare a flexible budget using the new assumption. d. Which pricing strategy should be adopted? Required A Complete this question by entering your answers in the tabs below. Required B Required C Required D

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 1: Standard rate and variable costs Service rate per hour Labor cost Overhead cost. Selling, general, and administrative cost Expected fixed costs. Facility maintenance Selling, general, and administrative $ 62.00 29.00 5.55 3.40 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 28,000 hours of services in Year 1. $ 316,000 121,000 b. 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 $57 per hour, the firm can achieve 31,000 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 $67 per hour, the number of service hours will decline to 25,000. Prepare a flexible budget using the new assumption. d. Which pricing strategy should be adopted? Required A Complete this question by entering your answers in the tabs below. Required B Required C Required D

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Title: Evaluating Pricing Strategies for Finch Computer Services** **Introduction** Howard Cooper, the president of Finch Computer Services, seeks to understand how altering the service rate might impact the firm’s net income. This study is based on key financial data for fiscal Year 1. **Standard Rate and Variable Costs** - **Service Rate per Hour:** $62.00 - **Labor Cost:** $29.00 - **Overhead Cost:** $5.55 - **Selling, General, and Administrative Cost:** $3.40 **Expected Fixed Costs** - **Facility Maintenance:** $316,000 - **Selling, General, and Administrative:** $121,000 **Tasks** a. **Pro Forma Income Statement** - Prepare a pro forma income statement for the scenario where the firm delivers 28,000 hours of service in Year 1. b. **Flexible Budget at $57 Rate** - A marketing consultant suggests a new service rate of $57 per hour, predicting an increase to 31,000 service hours. Develop a flexible budget with this assumption. c. **Flexible Budget at $67 Rate** - The consultant also suggests that increasing the rate to $67 per hour will reduce service hours to 25,000. Create a flexible budget using this scenario. d. **Decision-Making** - Analyze which pricing strategy should be adopted in light of the above assumptions. **Conclusion** The aim is to explore how different pricing strategies affect Finch Computer Services' financial performance, considering variable costs and expected fixed costs. Analyze each scenario and recommend the most viable pricing strategy.
Transcribed Image Text:**Title: Evaluating Pricing Strategies for Finch Computer Services** **Introduction** Howard Cooper, the president of Finch Computer Services, seeks to understand how altering the service rate might impact the firm’s net income. This study is based on key financial data for fiscal Year 1. **Standard Rate and Variable Costs** - **Service Rate per Hour:** $62.00 - **Labor Cost:** $29.00 - **Overhead Cost:** $5.55 - **Selling, General, and Administrative Cost:** $3.40 **Expected Fixed Costs** - **Facility Maintenance:** $316,000 - **Selling, General, and Administrative:** $121,000 **Tasks** a. **Pro Forma Income Statement** - Prepare a pro forma income statement for the scenario where the firm delivers 28,000 hours of service in Year 1. b. **Flexible Budget at $57 Rate** - A marketing consultant suggests a new service rate of $57 per hour, predicting an increase to 31,000 service hours. Develop a flexible budget with this assumption. c. **Flexible Budget at $67 Rate** - The consultant also suggests that increasing the rate to $67 per hour will reduce service hours to 25,000. Create a flexible budget using this scenario. d. **Decision-Making** - Analyze which pricing strategy should be adopted in light of the above assumptions. **Conclusion** The aim is to explore how different pricing strategies affect Finch Computer Services' financial performance, considering variable costs and expected fixed costs. Analyze each scenario and recommend the most viable pricing strategy.
**Image Explanation for Educational Website** This image provides a template for preparing a pro forma income statement applicable to the master budget of Finch Computer Services. The company anticipates delivering 28,000 hours of services in Year 1. The components of the template are organized as follows: 1. **Header:** - "FINCH COMPUTER SERVICES" - "Pro Forma Income Statement" - "Master Budget" 2. **Sections:** - **Variable Costs:** This section includes rows for detailed listing of the variable costs. These costs are expected to fluctuate based on the level of services provided. - **Fixed Costs:** This section outlines the fixed costs that remain constant regardless of the service hours provided. 3. **Layout:** - The table provides space to fill in values or descriptions for each cost type on both sides of each section. This pro forma income statement is a planning tool for estimating the expected income and expenses over a specified period, helping guide the financial planning process.
Transcribed Image Text:**Image Explanation for Educational Website** This image provides a template for preparing a pro forma income statement applicable to the master budget of Finch Computer Services. The company anticipates delivering 28,000 hours of services in Year 1. The components of the template are organized as follows: 1. **Header:** - "FINCH COMPUTER SERVICES" - "Pro Forma Income Statement" - "Master Budget" 2. **Sections:** - **Variable Costs:** This section includes rows for detailed listing of the variable costs. These costs are expected to fluctuate based on the level of services provided. - **Fixed Costs:** This section outlines the fixed costs that remain constant regardless of the service hours provided. 3. **Layout:** - The table provides space to fill in values or descriptions for each cost type on both sides of each section. This pro forma income statement is a planning tool for estimating the expected income and expenses over a specified period, helping guide the financial planning process.
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