Question

I. Garza and Neely CPAs, are preparing their service revenue (sales) budget for the coming year (2014). The practice is divided into the three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below.

            Department             Quarter 1                  Quarter 2                  Quarter 3                  Quarter 4

            Auditing                    2,300                         1,600                          2,000                          2,400

            Tax                           3,000                         2,200                          2,000                          2,500

            Consulting                1,500                         1,500                          1,500                          1,500

Average hourly billing rates are auditing $80, tax $90, and consulting $100.

Instructions

Prepare the service revenue (sales) budget for 2014 by listing the departments and showing for each quarter and the year in total, billable hours, billable rate, and total revenue.

II Thome Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.

                        Indirect labor                       $ 1.00

                        Indirect materials                     0.60

                        Utilities                                 0.40

Fixed overhead costs per month are supervision $4,000, depreciation $1,200, and property taxes $800. The company believes it will normally operate in a range of 7,000 – 10,000 direct labor hours per month.

Instructions

Prepare a monthly manufacturing overhead flexible budget for 2014 for the expected range of activity, using increments of 1,000 direct labor hours.

IV. In the Assembly Department of Hannon Company, budgeted and actual manufacturing overhead cost for the month of April 2014 were as follows.

                                                                                   Budget                      Actual

                        Indirect materials                             $16,000                     $14,300

                        Indirect labor                                     $20,000                     $20,600

                        Utilities                                             $10,000                     $10,850

                        Supervision                                     $ 5,000                     $ 5,000

All costs are controllable by the department manager. Prepare a responsibility report for April for the cost center.

Answer 1

Three Solutions

I Solution

Graza and Neely CPAs

Service revenue budget:

	Thome and Crede CPAs
	Service Revenue Budget
		Quarter 1				Quarter 2
Department	Billable Hours	Billable Rate	Total Revenue	Billable Hours	Billable Rate	Total Revenue
Auditing	2,300	$80	$184,000		1,600	$80	$128,000
Tax	3,000	$90	$270,000		2,200	$90	$198,000
Consulting	1,500	$100	$150,000		1,500	$100	$150,000
Total			$604,000				$476,000

	Garza and Neely CPAs
	Service Revenue Budget
		Quarter 3				Quarter 4
Department	Billable Hours	Billable Rate	Total Revenue	Billable Hours	Billable Rate	Total Revenue
Auditing	2,000	$80	$160,000		2,400	$80	$192,000
Tax	2,000	$90	$180,000		2,500	$90	$225,000
Consulting	1,500	$100	$150,000		1,500	$100	$150,000
Total			$490,000				$567,000

Note: total revenue (for any department) = billable hours x billable rate

For instance, Auditing in Quarter1,

Billable hours = 2,300

Billable rate = $80

Total revenue = 2,300 x $80 = $184,000

Service Revenue Budget

Garza and Neely CPAs
Service Revenue Budget
For the Year Ended 2014
Department	Billable Hours	Billable Rate	Total Revenue
Auditing	8,300	$80	$664,000
Tax	9,700	$90	$873,000
Consulting	6,000	$100	$600,000
Total			$2,137,000

Note: total revenue for each department is computed as follows,

Total billable hours for each quarter x billable rate = total revenue

- Auditing

Billable hours = billable hours in Quarter 1+ quarter 2 + Quarter 3 + Quarter 4

= 2,300 + 1,600 + 2,000 + 2,400 = 8300 hours

Billable rate = $80

Total revenue = $80 x 8,300 = $664,000

- Tax

Billable hours = 3,000 + 2,200 + 2,000 + 2,500 = 9,700

Billable rate = $90

Total revenue = $90 x 9,700 hours = $873,000

- Consulting

Billabe hours = 1,500 + 1,500 + 1,500 + 1,500 = 6,000

Billable rate = $100

Total revenue = $100 x 6,000 = $600,000

II Thome Company

Flexible budget for manufacturing overhead:

a. Flexible Budget 7,000, 8,000, 9,000 and 10,000 direct labor hours:

Flexible Budget
at Multiple Levels of Direct Labor Hours
Direct labor hours	7,000	8,000	9,000	10,000
Variable Costs:
Indirect Labor $1.00 per DLH	$7,000	$8,000	$9,000	$10,000
Indirect Materials at $0.60 per DLH	$4,200	$4,800	$5,400	$6,000
Utilities at $0.40	$2,800	$3,200	$3,600	4,000
Total variable cost	$14,000	$16,000	$18,000	$20,000
Fixed Costs:
supervision	$4,000	$4,000	$4,000	$4,000
Depreciation	$1,200	$1,200	$1,200	$1,200
Property taxes	$800	$800	$800	$800
Total Fixed Cost	$6,000	$6,000	$6,000	$6,000

Total Cost                                                                   $20,000           $22,000            $24,000           $26,000          

IV

Hannon Company

	Responsibility Accounting Performance Report
	Dept. Manager, Snowmobile Department
		For the year
	Budgeted Amount	Actual Amount	Over (Under) Budget
Controllable Costs:
Indirect Materials	$16,000	$14,300	($1,700)
Indirect Labor	$20,000	$20,600	$600
Utilities	$10,000	$10,850	$850
Supervision	$5,000	$5,000	$0
Totals	$51,000	$50,750	($250)

The responsibility accounting performance report includes the actual and budgeted dollar amounts of all items (revenues and expenses) that are under the respective department manager’s control.

For the assembly department of Hannon the department manager can control indirect materials, indirect labor, utilities and supervision. Hence, the actual, budgeted and over or under budget amounts are shown in the responsibility report.