Question

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. H A B C С Billable Audit Hours Staff Manager 12 D E Billable Advising Hours Staff Manager ann 10 F G Total Billable Hours Staff Manager 350 22 2 15

Answer 1

As per Chegg policy, first four sub-parts are answered:

a)
Predetermined overhead rate =	Overhead and administrative costs/ Expected billable hours
Predetermined overhead rate =	$4,500,000/20,000
Predetermined overhead rate =	$225
Predetermined overhead rate is $225 per billable hour.
b)
Billing of Client 02 for audit services:
	Client 02
	Staff	Manager	Total
Billable Audit Hours (a)	70	10	80
Quoted rate (b)	$200	$500
Predetermined overhead rate (c)	$225	$225
Total billing (a)*[(b)+(c)]	$29,750	$7,250	$37,000
c)
Cost of Client 02 for audit services:
	Client 02
	Staff	Manager	Total
Billable Audit Hours (a)	70	10	80
Hourly wage rate (b)	$60	$150
Predetermined overhead rate (c)	$225	$225
Total billing (a)*[(b)+(c)]	$19,950	$3,750	$23,700
d)
Revenue from audit services:
	Client 02
	Staff	Manager	Total
Billable Audit Hours (a)	8,500	1,200	9,700
Quoted rate (b)	$200	$500
Predetermined overhead rate (c)	$225	$225
Total revenue (a)*[(b)+(c)]	$3,612,500	$870,000	$4,482,500