Q.suppose Calvert could take on as much business as it could complete, but it could not add more professional staff. Assume Calvert could eliminate all errors so that it does not need to spend any time correcting errors. Assume Calvert could use the time saved to increase revenues proportionately. Assume travel costs will remain at $15,000. Calculate Calvert’s operating income for 2017. Target operating income, value-added costs, service company. Calvert Associates preparesarchitectural drawings to conform to local structural-safety codes. Its income statement for 2017 is asfollows:$701,250390,000RevenuesSalaries of professional staff (7,500 hours x $52 per hour)Travel15,000Administrative and support costs171,600576,600Total costsOperating income$124,650The percentage of time spent by professional staff on various activities follows:77%Making calculations and preparing drawings for clientsChecking calculations and drawingsCorrecting errors found in drawings (not billed to clients)Making changes in response to client requests (billed to clients)Correcting own errors regarding building codes (not billed to clients)35Total100%Assume administrative and support costs vary with professional-labor costs.

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Answered: Target operating income, value-added…

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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Q.suppose Calvert could take on as much business as it could complete, but it could not add more professional staff. Assume Calvert could eliminate all errors so that it does not need to spend any time correcting errors. Assume Calvert could use the time saved to increase revenues proportionately. Assume travel costs will remain at $15,000. Calculate Calvert’s operating income for 2017.

Target operating income, value-added costs, service company. Calvert Associates prepares
architectural drawings to conform to local structural-safety codes. Its income statement for 2017 is as
follows:
$701,250
390,000
Revenues
Salaries of professional staff (7,500 hours x $52 per hour)
Travel
15,000
Administrative and support costs
171,600
576,600
Total costs
Operating income
$124,650
The percentage of time spent by professional staff on various activities follows:
77%
Making calculations and preparing drawings for clients
Checking calculations and drawings
Correcting errors found in drawings (not billed to clients)
Making changes in response to client requests (billed to clients)
Correcting own errors regarding building codes (not billed to clients)
3
5
Total
100%
Assume administrative and support costs vary with professional-labor costs.

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