Howard Cooper, the president of Walton 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 $63.00 31.00 5.55 3.40 $ 317,000 122,000 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 32,000 hours of services in Year 1. 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 Walton charges customers $58 per hour, the firm can achieve 35,000 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 $68 per hour, the number of service hours will decline to 29,000. Prepare a flexible budget using the new assumption. d. Which pricing strategy should be adopted?

Howard Cooper, the president of Walton 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 $63.00 31.00 5.55 3.40 $ 317,000 122,000 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 32,000 hours of services in Year 1. 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 Walton charges customers $58 per hour, the firm can achieve 35,000 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 $68 per hour, the number of service hours will decline to 29,000. Prepare a flexible budget using the new assumption. d. Which pricing strategy should be adopted?

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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