Executive Solutions is a strategy consulting firm Other than

Executive Solutions is a strategy consulting firm. Other than the senior leadership (who manage the firm, but do not actively consult), the managers and staff are billed to clients on an hourly basis. The workload varies quite a bit from month to month requiring careful planning.

Managers are billed to clients at a rate of $920 per hour and staff at a rate of  $460 per hour. Managers are paid $245 per hour worked (including nonbillable time) and staff are paid $135 per hour. The current plan calls for managers to bill 1,220 hours in May and 770 hours in June. Staff are expected to bill 6,440 hours in May and 4,540 hours in June. Managers will work a total of 2,440 hours in both months and staff will work a total of 9,640 hours in both months.

Other monthly costs (all fixed) are $551,000 SG&A, $226,000 in depreciation, and $351,000 in marketing.

Required:

Prepare a budgeted income statement for Executive Solutions for May and June (separately).

Solution

May June Revenues: Managers 1122400 708400 Staff 2962400 2088400 Total revenue 4084800 2796800 Expenses: Manager compensation 597800 597800 Staff compensation 1301400 1301400 Total compensation 1899200 1899200 SG&A 551000 551000 Depreciation 226000 226000 Marketing 351000 351000 Total expenses 3027200 3027200 Income (Loss) 1057600 -230400