Question

Curtis Salter the president of Kaimer Computer Services, needs your help. He wonders about the potential effects on the firm's net income the changes the service rate that the firm charges its customers. The following basic data pertain to Escal year 2015 Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling general, and administrative R900 3700 6.70 3.90 Expected fed costs Facility maintenance Seling, general and administrative $523.000 49.000 Required a. Prepare the pro forma income statement that would appear in the master budget if the fem expects to provide 45.000 hours of services in 2015 K O MPUTER SERVICES b. A marketing consultant suggests to Me Salter that the service ate may affect the number of service hours that the form can achieve. According to the constant's analys e charges customers 584 per hour, the firm can achieve 52.000 hours of services Prepare a flexible budget using the constant assumption KASAR COMPUTER SERVICES Proforma mesa

Answer 1

			(a)	(b)	(c)
Particulars			45000 hrs	52000 hrs	39000 hrs
Service Revenue			$ 4,005,000.00	$ 4,368,000.00	$ 3,666,000.00
Variable Costs
Labor cost			$ 1,665,000.00	$ 1,924,000.00	$ 1,443,000.00
Overhead cost			$    301,500.00	$    348,400.00	$    261,300.00
SG&A cost			$    175,500.00	$    202,800.00	$    152,100.00
Total variable costs			$ 2,142,000.00	$ 2,475,200.00	$ 1,856,400.00
Contribution Margin			$ 1,863,000.00	$ 1,892,800.00	$ 1,809,600.00
Fixed Costs
Facility maintenance			$    523,000.00	$    523,000.00	$    523,000.00
SG&A			$    149,000.00	$    149,000.00	$    149,000.00
Total fixed costs			$    672,000.00	$    672,000.00	$    672,000.00
Net operating income			$ 1,191,000.00	$ 1,220,800.00	$ 1,137,600.00

Workings:

			(a)	(b)	(c)
Particulars			45000 hrs	52000 hrs	39000 hrs
Service Revenue			=45000*89	=52000*84	=39000*94
Variable Costs
Labor cost			=45000*37	=52000*37	=39000*37
Overhead cost			=45000*6.7	=52000*6.7	=39000*6.7
SG&A cost			=45000*3.9	=52000*3.9	=39000*3.9
Total variable costs			=SUM(E7:E9)	=SUM(F7:F9)	=SUM(G7:G9)
Contribution Margin			=E5-E10	=F5-F10	=G5-G10
Fixed Costs
Facility maintenance			523000	523000	523000
SG&A			149000	149000	149000
Total fixed costs			=SUM(E13:E14)	=SUM(F13:F14)	=SUM(G13:G14)
Net operating income			=E11-E15	=F11-F15	=G11-G15