According to its original plan. Bailey Consulting Services Company plans to char

Question

According to its original plan. Bailey Consulting Services Company plans to charge its customers for service at $132 per hour in 2014. The company president expects consulting services provided to customers to reach 49.000 hours at that rate. The marketing manager, however, argues that actual results may range from 43.000 hours to 55.000 hours because of market uncertainty. Bailey's standard variable cost is $40 per hour, and its standard fixed cost is $1,420,000. Prepare flexible budgets based on the assumptions of service levels at 43.000 hours. 49.000 hours, and 55.000 hours.

Explanation / Answer

Flexible Budget 43,000 hours Flexible Budget 49,000 hours Flexible Budget 55,000 hours Units                    43,000                   49,000                    55,000 Service Charge              5,676,000             6,468,000              7,260,000 Variable Cost           (1,720,000)          (1,960,000)           (2,200,000) Contribution Margin              3,956,000             4,508,000              5,060,000 Less Standard Fixed Cost           (1,420,000)          (1,420,000)           (1,420,000) Profit              2,536,000             3,088,000              3,640,000

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