Question

questions: E - I only

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 $60 for staff and $150 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 $4,500,000, of which about $1.500,000 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 Hours Start Manager Billable Advising Hours Stall Manager Total utable Hours Start Manager 350 Selected information on billable hours expected for the next year follow. A 1 H B Billable Audit Hours Staft Manager 150 12 70 10 220 30 D Billable Advising Hours Staff Manager 200 10 0 0 80 15 Total Billable Hours Staff Manager 350 22 70 10 300 45 3 Client 01 4 Clent 02 5 Client 03 6 7 Client 49 8 Cilent 50 9 Total 40 300 8.500 2 20 1.200 O 200 9.500 0 15 800 40 500 18.000 2 35 2.000

Answer 1

mployee	Hourly rate	Hours spent	No.	Expected hours
Staff	$60	1800	10	18000
Manager	$150	1000	2	2000
				20000
Overhead	4500000
Variable	1500000
Fixed	3000000
1. Predeterimed rate= estimated overhead/estimated billable hours
4500000/20000= $225
2. Client 2 Will be billed at
	Staff	Manager
Billable hour	70	10
Billable rate	200	500
Billed at $	14000	5000
Therefore, client 2 will be billed at 14000+5000= $19000
3. Cost of Client 2 auditing services
Variable overhead rate= 1500000/20000= $75
Staff cost(70*60)	4200
Manager cost (10*150)	1500
Variable overhead(80*75)	6000
Total cost		11700

4. Estimated revenue from audit serviced next year= (8500 hours*$200)+(1200 hours*$500)= $2300000