Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 36,000 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 Finch charges customers $80 per hour, the firm can achieve 45,000 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 30,000. Prepare a flexible budget using the new assumption.

Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 36,000 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 Finch charges customers $80 per hour, the firm can achieve 45,000 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 30,000. Prepare a flexible budget using the new assumption.

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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Concept explainers

Master Budget

A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.

Sales Budget and Selling

A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.

Question

14
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 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
36,000 hours of services in Year 3.
Required Required Required
A
B
с
$
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 $80 per hour, the firm can
achieve 45,000 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 30,000. Prepare a flexible budget using the new assumption.
Complete this question by entering your answers in the tabs below.
FINCH COMPUTER SERVICES
Pro Forma Income Statement
Master Budget
85.00
36.00
6.40
3.60
$522,000
146,000
Variable costs:
Prepare the pro forma income statement that would appear in the master budget if the
firm expects to provide 36,000 hours of services in Year 3.
Fixed costs:
< Required A
Required B >

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