Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 52

Budgeting for a Service Firm Refer to the AccuTax, Inc., example in the chapter. One of the partners is planning to retire at the end of the year. May Higgins, the sole remaining partner, plans to add a manager at an annual salary of $90,000. She expects the manager to work, on average, 45 hours a week for 45 weeks per year. She plans to change the required staff time for each hour spent to complete a tax return to the following:

	Business Return	Complex Individual Return	Simple Individual Return
Partner	0.3 hour	0.05 hour	—
Manager	0.2 hour	0.15 hour	—
Senior consultant	0.5 hour	0.40 hour	0.2 hour
Consultant	—	0.40 hour	0.8 hour

The manager is salaried and earns no overtime pay. Senior consultants are salaried but receive time and a half for any overtime worked. The firm plans to keep all the senior consultants and adjust the number of consultants as needed including employing part-time consultants, who also are paid on an hourly basis. The partner has also decided to have five supporting staff at $40,000 each. All other operating data remain unchanged. The manager will share 10 percent of any profit over $500,000 before bonus.

Required Set up an Excel spreadsheet to answer the following questions:

1. What is the budgeted total cost for overtime hours worked by senior consultants?

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2. How many full-time consultants should be budgeted?

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3. Determine the manager’s total compensation and total pretax operating income for the firm, assuming that the revenues from preparing tax returns remain unchanged.

Step 1 of 5

Not for profit organisations:

These are the type of organisations that do not work to create profit for their members but to provide them with the services and goods for charitable purposes. Their source of cash is through donations and contributions from members. They are managed by the trustees or the board of directors who are responsible to manage the day to day activities of the organisation for common good of all the beneficiaries.