Howard Cooper, the president of Walton 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 1: Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost Expected fixed costs Facility maintenance Selling, general, and administrative $63.00 31.00 5.55 3.40 $ 317,000 122,000 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 32,000 hours of services in Year 1. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Walton charges customers $58 per hour, the firm can achieve 35,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same consultant also suggests that if the firm raises its rate to $68 per hour, the number of service hours will decline to 29,000. Prepare a flexible budget using the new assumption. d. Which pricing strategy should be adopted?

Howard Cooper, the president of Walton 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 1: Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost Expected fixed costs Facility maintenance Selling, general, and administrative $63.00 31.00 5.55 3.40 $ 317,000 122,000 Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 32,000 hours of services in Year 1. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Walton charges customers $58 per hour, the firm can achieve 35,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same consultant also suggests that if the firm raises its rate to $68 per hour, the number of service hours will decline to 29,000. Prepare a flexible budget using the new assumption. d. Which pricing strategy should be adopted?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 1CE: The expected costs for the Maintenance Department of Stazler, Inc., for the coming year include:...

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Objective: Consider that you are an analyst at Regeneron Pharmaceuticals. You need to decide how to allocate administrative overhead costs to Regeneron's main commercial products (Eylea, Dupixent, Kevzara and Praluent). Determine how to appropriately allocate the costs in the table below to each of the commercial products using an allocation methodology of your choice. Department2019 Annual Operating ExpenseTime spent supporting Commercial productsCommercial$200MM100%IT$100MM25%Facilities$150MM0%Finance$25MM20%Human Resources$75MM10% Use the supporting document Net Product Sales of REGN Products to facilitate your analysis. Provide a written summary of how you allocated the overhead costs to each product in an outline of no more than one page. As a starting point, it's recommended that you revisit the material we covered in Chapter 12. Guidance on calculations:Start off with Net Product Sales of REGN Products. Your objective pertains to 2019 expenses, so you should be reviewing 2019…
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