Question

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 $900 per hour and staff at a rate of $450 per hour. Managers are paid $225 per hour worked (including nonbillable time) and staff are paid $125 per hour. The current plan calls for managers to bill 1,200 hours in May and 750 hours in June. Staff are expected to bill 6,400 hours in May and 4,500 hours in June. Managers will work a total of 2,400 hours in both months and staff will work a total of 9,600 hours in both months.

Other monthly costs (all fixed) are $550,000 SG&A, $225,000 in depreciation, and $350,000 in marketing.

Required:

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

Please show steps

Answer 1

Answer
Budgeted Income Statement
Particulars		May	June
Revenues
managers (900*1250),(900*750)		$     11,25,000	$       6,75,000
staff (450*6400),(450*4500)		$     28,80,000	$     20,25,000
Total revenue		$     40,05,000	$     27,00,000
Expenses:
manager compensation(225*2400),(225*2400)		$       5,40,000	$       5,40,000
staff compensation (125*9600),(125*9600)		$     12,00,000	$     12,00,000
Total compensation		$     17,40,000	$     17,40,000
SG&A		$       5,50,000	$       5,50,000
Depreciation		$       2,25,000	$       2,25,000
Marketing		$       3,50,000	$       3,50,000
Total expenses		$     28,65,000	$     28,65,000
Income (Loss)		$     11,40,000	$      -1,65,000
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