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.
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.
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.
Transcribed Image Text: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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