aconneCt All applicable Problems in Series A are available in Connect Problem 8-

Question

aconneCt All applicable Problems in Series A are available in Connect Problem 8-18A Flexible budget planning Howard Cooper, the president of Glacier Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2019: Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost $60.00 32.00 5.76 3.44 Expected fixed costs Facility maintenance Selling, general, and administrative $320,000 120,000 Required a. Prepare the pro forma income statement that would appear in the master budget if the firm expects b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of to provide 30,000 hours of services in 2019. service hours that the firm can achieve. According to the consultant's analysis, if Glacier charges customers $56 per hour, the firm can achieve 38,000 hours of services. Prepare a flexible budget using the consultant's assumption The same consultant also suggests that if the firm raises its rate to $64 per hour, the number of service hours will decline to 25,000. Prepare a flexible budget using the new assumption. Evaluate the three possible outcomes you determined in Requirements a, b, and c and recommend a pricing strategy c. d.

Explanation / Answer

a b c Std cost per hour Master Budget Flexible Budget Flexible Budget 30000 hours 38000 hours 25000 hours Service revenue 1800000 2128000 1600000 (30000*60) (38000*56) (25000*64) Variable cost Labor cost (no. of hours*std c0st per unit) 32 960000 1216000 800000 Overhead cost 5.76 172800 218880 144000 Selling General & Administrative cost 3.44 103200 130720 86000 Contribution margin sales-variable cost 564000 562400 570000 Fixed cost Facility maintainenece 320000 320000 320000 Selling General & Administrative cost 120000 120000 120000 Net Income 124000 122400 130000 ans d The maximum profit that is achieved is in option c when prices are incraesed and hours are less due to it, so the company can go for this option. The least profit is achieved when hours are incraesed and prices are reduced this also gives an negative impact for the future as prices are at the lower side.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.