Toronto Business Associates, a division of Maple Leaf Services Corporation, offers management and computer consulting services to clients throughout Canada and the northwestern United States. The division specializes in website development and other Internet applications. The corporate management at Maple Leaf Services is pleased with the performance of Toronto Business Associates for the first nine months of the current year and has recommended that the division manager, Richard Howell, submit a revised forecast for the remaining quarter, as the division has exceeded the annual plan year-to-date by 20 percent of operating income. An unexpected increase in billed hour volume over the original plan is the main reason for this increase in income. The original operating budget for the first three quarters for Toronto Business Associates follows. TORONTO BUSINESS ASSOCIATES 20x1 Operating Budget 1st Quarter 2nd Quarter 3rd Quarter Total for First Three Quarters Revenue: Consulting fees: Computer system consulting $ 508,500 $ 508,500 $ 508,500 $ 1,525,500 Management consulting 405,000 405,000 405,000 1,215,000 Total consulting fees $ 913,500 $ 913,500 $ 913,500 $ 2,740,500 Other revenue 19,500 19,500 19,500 58,500 Total revenue $ 933,000 $ 933,000 $ 933,000 $ 2,799,000 Expenses: Consultant salary expenses $ 396,250 $ 396,250 $ 396,250 $ 1,188,750 Travel and related expenses 55,500 55,500 55,500 166,500 General and administrative expenses 119,000 119,000 119,000 357,000 Depreciation expense 59,000 59,000 59,000 177,000 Corporate expense allocation 69,000 69,000 69,000 207,000 Total expenses $ 698,750 $ 698,750 $ 698,750 $ 2,096,250 Operating income $ 234,250 $ 234,250 $ 234,250 $ 702,750 Howell will reflect the following information in his revised forecast for the fourth quarter. Toronto Business Associates currently has 25 consultants on staff, 10 for management consulting and 15 for computer systems consulting. Three additional management consultants have been hired to start work at the beginning of the fourth quarter in order to meet the increased client demand. The hourly billing rate for consulting revenue will remain at $75 per hour for each management consultant and $60 per hour for each computer consultant. However, due to the favorable increase in billing hour volume when compared to the plan, the hours for each consultant will be increased by 60 hours per quarter. The budgeted annual salaries and actual annual salaries, paid monthly, are the same: $69,000 for a management consultant and $65,000 for a computer consultant. Corporate management has approved a merit increase of 10 percent at the beginning of the fourth quarter for all 25 existing consultants, while the new consultants will be compensated at the planned rate. The planned salary expense includes a provision for employee fringe benefits amounting to 25 percent of the annual salaries. However, the improvement of some corporatewide employee programs will increase the fringe benefits to 40 percent. The original plan assumes a fixed hourly rate for travel and other related expenses for each billing hour of consulting. These are expenses that are not reimbursed by the client, and the previously determined hourly rate has proven to be adequate to cover these costs. Other revenue is derived from temporary rentals and interest income and remains unchanged for the fourth quarter. General and administrative expenses have been favorable at 8 percent below the plan; this 8 percent savings on fourth quarter expenses will be reflected in the revised plan. Depreciation of office equipment and personal computers will stay constant at the projected straight-line rate. Due to the favorable experience for the first three quarters and the division’s increased ability to absorb costs, the corporate management at Maple Leaf Services has increased the corporate expense allocation by 50 percent. Required: 1. Prepare a revised operating budget for the fourth quarter for Toronto Business Associates that Richard Howell will present to corporate management. 2. Identify the circumstance under which an organization would prepare revised operations.

Toronto Business Associates, a division of Maple Leaf Services Corporation, offers management and computer consulting services to clients throughout Canada and the northwestern United States. The division specializes in website development and other Internet applications. The corporate management at Maple Leaf Services is pleased with the performance of Toronto Business Associates for the first nine months of the current year and has recommended that the division manager, Richard Howell, submit a revised forecast for the remaining quarter, as the division has exceeded the annual plan year-to-date by 20 percent of operating income. An unexpected increase in billed hour volume over the original plan is the main reason for this increase in income. The original operating budget for the first three quarters for Toronto Business Associates follows. TORONTO BUSINESS ASSOCIATES 20x1 Operating Budget 1st Quarter 2nd Quarter 3rd Quarter Total for First Three Quarters Revenue: Consulting fees: Computer system consulting $ 508,500 $ 508,500 $ 508,500 $ 1,525,500 Management consulting 405,000 405,000 405,000 1,215,000 Total consulting fees $ 913,500 $ 913,500 $ 913,500 $ 2,740,500 Other revenue 19,500 19,500 19,500 58,500 Total revenue $ 933,000 $ 933,000 $ 933,000 $ 2,799,000 Expenses: Consultant salary expenses $ 396,250 $ 396,250 $ 396,250 $ 1,188,750 Travel and related expenses 55,500 55,500 55,500 166,500 General and administrative expenses 119,000 119,000 119,000 357,000 Depreciation expense 59,000 59,000 59,000 177,000 Corporate expense allocation 69,000 69,000 69,000 207,000 Total expenses $ 698,750 $ 698,750 $ 698,750 $ 2,096,250 Operating income $ 234,250 $ 234,250 $ 234,250 $ 702,750 Howell will reflect the following information in his revised forecast for the fourth quarter. Toronto Business Associates currently has 25 consultants on staff, 10 for management consulting and 15 for computer systems consulting. Three additional management consultants have been hired to start work at the beginning of the fourth quarter in order to meet the increased client demand. The hourly billing rate for consulting revenue will remain at $75 per hour for each management consultant and $60 per hour for each computer consultant. However, due to the favorable increase in billing hour volume when compared to the plan, the hours for each consultant will be increased by 60 hours per quarter. The budgeted annual salaries and actual annual salaries, paid monthly, are the same: $69,000 for a management consultant and $65,000 for a computer consultant. Corporate management has approved a merit increase of 10 percent at the beginning of the fourth quarter for all 25 existing consultants, while the new consultants will be compensated at the planned rate. The planned salary expense includes a provision for employee fringe benefits amounting to 25 percent of the annual salaries. However, the improvement of some corporatewide employee programs will increase the fringe benefits to 40 percent. The original plan assumes a fixed hourly rate for travel and other related expenses for each billing hour of consulting. These are expenses that are not reimbursed by the client, and the previously determined hourly rate has proven to be adequate to cover these costs. Other revenue is derived from temporary rentals and interest income and remains unchanged for the fourth quarter. General and administrative expenses have been favorable at 8 percent below the plan; this 8 percent savings on fourth quarter expenses will be reflected in the revised plan. Depreciation of office equipment and personal computers will stay constant at the projected straight-line rate. Due to the favorable experience for the first three quarters and the division’s increased ability to absorb costs, the corporate management at Maple Leaf Services has increased the corporate expense allocation by 50 percent. Required: 1. Prepare a revised operating budget for the fourth quarter for Toronto Business Associates that Richard Howell will present to corporate management. 2. Identify the circumstance under which an organization would prepare revised operations.

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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TORONTO BUSINESS ASSOCIATES
20x1 Operating Budget
	1st Quarter		2nd Quarter	3rd Quarter	Total for First Three Quarters
Revenue:
Consulting fees:
Computer system consulting		$	508,500		$	508,500	$	508,500	$	1,525,500
Management consulting			405,000			405,000		405,000		1,215,000
Total consulting fees		$	913,500		$	913,500	$	913,500	$	2,740,500
Other revenue			19,500			19,500		19,500		58,500
Total revenue		$	933,000		$	933,000	$	933,000	$	2,799,000
Expenses:
Consultant salary expenses		$	396,250		$	396,250	$	396,250	$	1,188,750
Travel and related expenses			55,500			55,500		55,500		166,500
General and administrative expenses			119,000			119,000		119,000		357,000
Depreciation expense			59,000			59,000		59,000		177,000
Corporate expense allocation			69,000			69,000		69,000		207,000
Total expenses		$	698,750		$	698,750	$	698,750	$	2,096,250
Operating income		$	234,250		$	234,250	$	234,250	$	702,750

Howell will reflect the following information in his revised forecast for the fourth quarter.

Toronto Business Associates currently has 25 consultants on staff, 10 for management consulting and 15 for computer systems consulting. Three additional management consultants have been hired to start work at the beginning of the fourth quarter in order to meet the increased client demand.
The hourly billing rate for consulting revenue will remain at $75 per hour for each management consultant and $60 per hour for each computer consultant. However, due to the favorable increase in billing hour volume when compared to the plan, the hours for each consultant will be increased by 60 hours per quarter.
The budgeted annual salaries and actual annual salaries, paid monthly, are the same: $69,000 for a management consultant and $65,000 for a computer consultant. Corporate management has approved a merit increase of 10 percent at the beginning of the fourth quarter for all 25 existing consultants, while the new consultants will be compensated at the planned rate.
The planned salary expense includes a provision for employee fringe benefits amounting to 25 percent of the annual salaries. However, the improvement of some corporatewide employee programs will increase the fringe benefits to 40 percent.
The original plan assumes a fixed hourly rate for travel and other related expenses for each billing hour of consulting. These are expenses that are not reimbursed by the client, and the previously determined hourly rate has proven to be adequate to cover these costs.
Other revenue is derived from temporary rentals and interest income and remains unchanged for the fourth quarter.
General and administrative expenses have been favorable at 8 percent below the plan; this 8 percent savings on fourth quarter expenses will be reflected in the revised plan.
Depreciation of office equipment and personal computers will stay constant at the projected straight-line rate.
Due to the favorable experience for the first three quarters and the division’s increased ability to absorb costs, the corporate management at Maple Leaf Services has increased the corporate expense allocation by 50 percent.

Required:
1. Prepare a revised operating budget for the fourth quarter for Toronto Business Associates that Richard Howell will present to corporate management.
2. Identify the circumstance under which an organization would prepare revised operations.

# Toronto Business Associates: Revised Operating Budget

**For the Fourth Quarter of 20x1**

## Objective:
Prepare a revised operating budget for the fourth quarter for Toronto Business Associates, to be presented by Richard Howell to corporate management.

---

### Revenue:

- **Consulting Fees:**
- **Computer System Consulting**
- **Management Consulting**
- **Total Consulting Fees**: $0

- **Other Revenue**

- **Total Revenue**: $0

### Expenses:

- **Consultant Salary Expenses**
- **Travel and Related Expenses**
- **General and Administrative Expenses**
- **Depreciation Expense**
- **Corporate Expense Allocation**

- **Total Expenses**: $0

### Operating Income

---

This budget outlines the expected revenues and expenses for Toronto Business Associates in the fourth quarter. The categories include specific types of consulting fees and a detailed breakdown of expenses. Each section is to be filled with projected figures to analyze the financial outlook.

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