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Howard Cooper, the president of Stuart 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 3. 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 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 30.000 hours of services in Year 3. 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 Stuart charges customers $80 per hour, the firm can achieve 36.000 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 $90 per hour, the number of service hours will decline to 22,000. Prepare a flexible budget using the new assumption. $85.00 33.00 6.30 3.50 Complete this question by entering your answers in the tabs below. Variable costs: $ 525,000 148,000 Required A Required B Required C Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 30,000 hours of services in Year 3. Fixed costs: STUART COMPUTER SERVICES Pro Forma Income Statement Master Budget < Required A Required B >

Howard Cooper, the president of Stuart 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 3. 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 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 30.000 hours of services in Year 3. 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 Stuart charges customers $80 per hour, the firm can achieve 36.000 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 $90 per hour, the number of service hours will decline to 22,000. Prepare a flexible budget using the new assumption. $85.00 33.00 6.30 3.50 Complete this question by entering your answers in the tabs below. Variable costs: $ 525,000 148,000 Required A Required B Required C Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 30,000 hours of services in Year 3. Fixed costs: STUART COMPUTER SERVICES Pro Forma Income Statement Master Budget < Required A Required B >

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: Analyzing the Impact of Service Rate Changes on Financial Projections** Howard Cooper, the president of Stuart Computer Services, seeks insights into how altering the service rate may affect the firm’s net income. Data for fiscal Year 3 are provided below. ### Standard Rate and Variable Costs - **Service rate per hour:** $85.00 - **Labor cost:** $38.00 - **Overhead cost:** $6.30 - **Selling, general, and administrative cost:** $3.50 - **Expected fixed costs:** - **Facility maintenance:** $325,000 - **Selling, general, and administrative:** $148,000 ### Required Analysis a. **Pro Forma Income Statement (Master Budget):** Develop the pro forma income statement assuming the firm provides 30,000 hours of services in Year 3. b. **Flexible Budget at $80 Per Hour:** A marketing consultant suggests an $80 hourly rate may increase service hours to 36,000. Prepare a flexible budget for this scenario. c. **Flexible Budget at $90 Per Hour:** If the hourly rate increases to $90, service hours might decrease to 22,000. Prepare a flexible budget based on this assumption. ### Instructions Complete the budgetary analysis by fulfilling the requirements detailed in the sections labeled Required A, Required B, and Required C. --- **Graphical Analysis:** The table at the bottom is a template for a **Pro Forma Income Statement** which includes fields for listing both variable and fixed costs associated with the expected service output. This comprehensive approach ensures Howard Cooper has the financial clarity required to make informed strategic decisions regarding service pricing adjustments.
Transcribed Image Text:**Title: Analyzing the Impact of Service Rate Changes on Financial Projections** Howard Cooper, the president of Stuart Computer Services, seeks insights into how altering the service rate may affect the firm’s net income. Data for fiscal Year 3 are provided below. ### Standard Rate and Variable Costs - **Service rate per hour:** $85.00 - **Labor cost:** $38.00 - **Overhead cost:** $6.30 - **Selling, general, and administrative cost:** $3.50 - **Expected fixed costs:** - **Facility maintenance:** $325,000 - **Selling, general, and administrative:** $148,000 ### Required Analysis a. **Pro Forma Income Statement (Master Budget):** Develop the pro forma income statement assuming the firm provides 30,000 hours of services in Year 3. b. **Flexible Budget at $80 Per Hour:** A marketing consultant suggests an $80 hourly rate may increase service hours to 36,000. Prepare a flexible budget for this scenario. c. **Flexible Budget at $90 Per Hour:** If the hourly rate increases to $90, service hours might decrease to 22,000. Prepare a flexible budget based on this assumption. ### Instructions Complete the budgetary analysis by fulfilling the requirements detailed in the sections labeled Required A, Required B, and Required C. --- **Graphical Analysis:** The table at the bottom is a template for a **Pro Forma Income Statement** which includes fields for listing both variable and fixed costs associated with the expected service output. This comprehensive approach ensures Howard Cooper has the financial clarity required to make informed strategic decisions regarding service pricing adjustments.
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