or executives, A&R employees are either staff or managers. Staff employees are usually younger with less experience. Managers, who oversee the staff on jobs, are more experienced. The average hourly wage is $60 for staff and $
A&R Quality Advisors is a small consulting firm offering quality audits and advising services to small and mid-sized manufacturing firms. Quality audits entail reviewing, checking, and documenting quality practices within a firm. Quality advising entails making recommendations for new or revised quality practices. Other firms in the area offer one or both of these services, although the competition for quality audit jobs is stronger than for quality advising. In addition to senior executives, A&R employees are either staff or managers. Staff employees are usually younger with less experience. Managers, who oversee the staff on jobs, are more experienced. The average hourly wage is $60 for staff and $150 for managers. (Both staff and managers are paid an annual salary; these hourly costs are based on 2,000 average annual hours worked.) Staff are expected to spend at least 90 percent of their time on billable work. Because of administrative work associated with supervising the staff and the expectation that managers will spend a portion of their time seeking new business, managers are expected to spend about 50 percent of their time on billable work. A&R employs ten staff and two managers. In addition to staff and manager costs, A&R has
Selected information on billable hours expected for the next year follow.
| Billable Audit Hours | Billable Advising Hours | Total Billable Hours | ||||||||||
| Staff | Manager | Staff | Manager | Staff | Manager | |||||||
| Client 01 | 150 | 12 | 200 | 10 | 350 | 22 | ||||||
| Client 02 | 70 | 10 | 0 | 0 | 70 | 10 | ||||||
| Client 03 | 220 | 30 | 80 | 15 | 300 | 45 | ||||||
| ⋮ | ⋮ | ⋮ | ⋮ | ⋮ | ⋮ | ⋮ | ||||||
| Client 49 | 40 | 2 | 0 | 0 | 40 | 2 | ||||||
| Client 50 | 300 | 20 | 200 | 15 | 500 | 35 | ||||||
| Total | 8,500 | 1,200 | 9,500 | 800 | 18,000 | 2000 |
Additional info:
Total overhead=$45,00,000
Predetermined rate= $225
Client 02 will be billed $19000 for audit services next year
Variable overhead rate= $75/hr
Total cost= $11700
d. What will be the total revenues from audit services next year based on the expected hours and the billing rates?
e. Based on the
f. Based on the job costing system, what will be the cost of advisory services?
g. What is the expected profit of audit services next year?
h. What is the expected profit of advisory services next year?
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