Question

K&B is a small management consulting firm. Last month, the firm billed fewer hours than expected, and, as expected, profits were lower than anticipated.

	Reported Income Statement				Master Budget
Billable hoursa			7,400			10,000
Revenue		$	690,000		$	830,000
Professional salaries (all variable)			350,000			410,000
Other variable costs (e.g., supplies, computer services)			100,000			122,000
Fixed costs			209,000			204,000
Profit		$	31,000		$	94,000

^aThese are hours billed to clients. They are fewer than the number of hours worked because there is nonbillable time (e.g., slack periods, time in training sessions) and because some time worked for clients is not charged to them.

Required:

Prepare a flexible budget for K&B. Use billable hours as the measure of output (that is, units produced). (Do not round intermediate calculations. Enter your answers rounded to the nearest whole dollar.)

	Flexible Budget (based on actual of 7,400 hours) Revenue Costs: Professional salaries Other variable costs Fixed costs Total costs Profit

Answer 1

Flexible Budget (based on actual of 7,400 hours)
	Amount	Working
Revenue	$614,200.00	(830000/10000)*7400
Costs:
Professional salaries	$303,400.00	(410000/10000)*7400
Other variable costs	$90,280.00	(122000/10000)*7400
Fixed costs	$204,000.00
Total costs	$597,680.00
Profit	$16,520.00