Leary and O'Donnell, a local CPA firm, has been asked to bid on a contract to perform audits for three counties in its home state. Because existing staff are fully scheduled, if the firm is awarded the contract, it must hire one new staff member at a salary of $55,000 Co handle the additional workload. The managing partner is convinced that obtaining the contract will lead to additional new clients from the respective counties. Expected new work (excluding the three counties) is 780 hours at an average billing rate of $90 per hour. Other information follows about the firm's current annual revenues and costs: Firm volume in hours (normal) Fixed costs Variable cost Should the firm win the contract, the audits of the three counties will require 920 hours of expected work. 30,750 $575,000 $ 35/hour Required: 1. If the managing partner's expectations are correct, what is the lowest bid the firm can submit and still expect to increase annual net income? What would be the hourly billing rate for the county audit jobs just to break even on all the new business? (Round "Average billing rate" answer to 2 decimal places.) 2. If the contract is obtained at a price of $44,300, what is the minimum number of hours of new business in addition to the county work that must be obtained for the firm to break even on total new business? What is the margin of safety (MOS) regarding the county audit job proposal?
Leary and O'Donnell, a local CPA firm, has been asked to bid on a contract to perform audits for three counties in its home state. Because existing staff are fully scheduled, if the firm is awarded the contract, it must hire one new staff member at a salary of $55,000 Co handle the additional workload. The managing partner is convinced that obtaining the contract will lead to additional new clients from the respective counties. Expected new work (excluding the three counties) is 780 hours at an average billing rate of $90 per hour. Other information follows about the firm's current annual revenues and costs: Firm volume in hours (normal) Fixed costs Variable cost Should the firm win the contract, the audits of the three counties will require 920 hours of expected work. 30,750 $575,000 $ 35/hour Required: 1. If the managing partner's expectations are correct, what is the lowest bid the firm can submit and still expect to increase annual net income? What would be the hourly billing rate for the county audit jobs just to break even on all the new business? (Round "Average billing rate" answer to 2 decimal places.) 2. If the contract is obtained at a price of $44,300, what is the minimum number of hours of new business in addition to the county work that must be obtained for the firm to break even on total new business? What is the margin of safety (MOS) regarding the county audit job proposal?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Leary and O'Donnell, a local CPA firm, has been asked to bid on a contract to perform audits for three counties in its home state.
Because existing staff are fully scheduled, if the firm is awarded the contract, it must hire one new staff member at a salary of $55,000
to handle the additional workload. The managing partner is convinced that obtaining the contract will lead to additional new clients
from the respective counties. Expected new work (excluding the three counties) is 780 hours at an average billing rate of $90 per hour.
Other information follows about the firm's current annual revenues and costs:
Firm volume in hours (normal)
Fixed costs
Variable cost
Should the firm win the contract, the audits of the three counties will require 920 hours of expected work.
1. Lowest revenue
30,750
$575,000
Required:
1. If the managing partner's expectations are correct, what is the lowest bid the firm can submit and still expect to increase annual net
income? What would be the hourly billing rate for the county audit jobs just to break even on all the new business? (Round "Average
billing rate" answer to 2 decimal places.)
2. If the contract is obtained at a price of $44,300, what is the minimum number of hours of new business in addition to the county
work that must be obtained for the firm to break even on total new business? What is the margin of safety (MOS) regarding the county
audit job proposal?
Average billing rate
2. Minimum number of hours
Margin of safety (MOS)
$ 35/hour
per hour
hours
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