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 $130 per hour in 2014. The company president expects consulting services provided to customers to reach 47,000 hours at that rate. The marketing manager, however, argues that actual results may range from 41,000 hours to 53,000 hours because of market uncertainty. Bailey's standard variable cost is $45 per hour, and its standard fixed cost is $1,330,000.

Prepare flexible budgets based on the assumptions of service levels at 41,000 hours, 47,000 hours, and 53,000 hours.

Flexible Budget

41,000 Hours

Flexible Budget

47,000 Hours

Flexible Budget

53,000

According to its original plan, Bailey Consulting Services Company plans to charge its customers for service at $130 per hour in 2014. The company president expects consulting services provided to customers to reach 47,000 hours at that rate. The marketing manager, however, argues that actual results may range from 41,000 hours to 53,000 hours because of market uncertainty. Bailey's standard variable cost is $45 per hour, and its standard fixed cost is $1,330,000.

Explanation / Answer

(All values in $) Flexible Budget Flexible Budget Flexible Budget 41,000 Hours 47,000 Hours 53,000 Hours    Sales @ $130 per hour 5330000 6110000 6890000 Variable Costs @ $45 per hour -1845000 -2115000 -2385000 Fixed Costs -1330000 -1330000 -1330000 Net Income 2155000 2665000 3175000

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