THIS IS THE LAST PART OF THE QUESTION- THE IMAGE ARE THE FIRST PART THIS IS THE ENDING* A&R bills audit services based on billable hours and advising services at a fixed fee. The cost for audit services is determined by multiplying the billable hours by the quoted employee rates. Staff rates for the following year are $370 per hour and manager rates are $925 per hour. The rates are set to meet the competition in the area. To determine the cost (not the price) of the job. A&R uses a job costing system. To the employee costs (not the billing rates) is added an amount for overhead based on the predetermined rate and the billable hours in the job. The predetermined rate is based on expected billable hours. Total revenue at A&R next year is expected to be $16 million. The two founding partners of A&R are looking at these forecasts for next year and trying to decide whether to drop one of these services. "We should probably become more focused, as we sometimes remind our clients." Required: a. What is the predetermined overhead rate for costing jobs in the following year? b. How much will Client 02 be billed for audit services next year? c. How much will the job costing system report as the cost of Client 02 audit services next year?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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*THIS IS THE LAST PART OF THE QUESTION- THE IMAGE ARE THE FIRST PART THIS IS THE ENDING*

A&R bills audit services based on billable hours and advising services at a fixed fee. The cost for audit services is determined by multiplying the billable hours by the quoted employee rates. Staff rates for the following year are $370 per hour and manager rates are $925 per hour. The rates are set to meet the competition in the area.

To determine the cost (not the price) of the job. A&R uses a job costing system. To the employee costs (not the billing rates) is added an amount for overhead based on the predetermined rate and the billable hours in the job. The predetermined rate is based on expected billable hours.

Total revenue at A&R next year is expected to be $16 million.

The two founding partners of A&R are looking at these forecasts for next year and trying to decide whether to drop one of these services. "We should probably become more focused, as we sometimes remind our clients."

Required:

a. What is the predetermined overhead rate for costing jobs in the following year?

b. How much will Client 02 be billed for audit services next year?

c. How much will the job costing system report as the cost of Client 02 audit services next year?

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 job costing system, what will the reported cost of audit services be next year?

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? 

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 $230 for staff and $575 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 overhead and administrative costs of $8,308,000, of which about $2,769,000 is
variable with respect to billable hours. Overhead and administrative costs include the non-billable cost of the staff and managers.
Selected information on billable hours expected for the next year follow.
Transcribed Image Text: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 $230 for staff and $575 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 overhead and administrative costs of $8,308,000, of which about $2,769,000 is variable with respect to billable hours. Overhead and administrative costs include the non-billable cost of the staff and managers. Selected information on billable hours expected for the next year follow.
Billable Audit
Billable
Total Billable
Advising Hours
Staff Manager Staff Manager Staff Manager
Hours
Hours
Client
184
46
234
44
418
90
01
Client
з8
44
з8
44
e2
Client
254
64
114
49
368
113
03
Client
74
36
74
36
49
Client
334
54
234
49
568
103
50
Total 10, 20a
2,900 11,200
2,500 21,40e
5,400
Transcribed Image Text:Billable Audit Billable Total Billable Advising Hours Staff Manager Staff Manager Staff Manager Hours Hours Client 184 46 234 44 418 90 01 Client з8 44 з8 44 e2 Client 254 64 114 49 368 113 03 Client 74 36 74 36 49 Client 334 54 234 49 568 103 50 Total 10, 20a 2,900 11,200 2,500 21,40e 5,400
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