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 $940 per hour and staff at a rate of  $470 per hour. Managers are paid $265 per hour worked (including nonbillable time) and staff are paid $145 per hour. The current plan calls for managers to bill 1,240 hours in May and 790 hours in June. Staff are expected to bill 6,480 hours in May and 4,580 hours in June. Managers will work a total of 2,480 hours in both months and staff will work a total of 9,680 hours in both months.

Other monthly costs (all fixed) are $552,000 SG&A, $227,000 in depreciation, and $352,000 in marketing.

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

	EXECUTIVE SOLUTIONS Budgeted Income Statement May. June.    Revenues: Managers Staff Total revenue Expenses: Manager compensation Staff compensation Total compensation SG&A Depreciation Marketing Total expenses Income (Loss)

Answer 1

Executive Solutions

Budgeted Income Statement

For May and June

Particulars	May	June
Revenue
Manager	11,65,600	7,42,600
Staff	30,45,600	21,52,600
Total Revenue	42,11,200	28,95,200
Expenses
Manager Compensation	6,57,200	6,57,200
Staff Compensation	14,03,600	14,03,600
Total Compensation	20,60,800	20,60,800
SG&A	5,52,000	5,52,000
Depreciation	2,27,000	2,27,000
Marketing	3,52,000	3,52,000
Total Expenses	11,31,000	11,31,000
Income / (Loss)	10,19,400	(2,96,600)

Notes

Total Expenses = SG&A + Depreciation + Marketing

Total Compensation = Staff Compensation + Manager Compensation

Income / (Loss) = Total Revenue - Total Compensation - Total Expenses

Manager Revenue

Particulars	May	June
Hourly Rates for Managers	940	940
* Billable Hours for Managers	1,240	790
Total Revenue from Managers Billing	11,65,600	742,600

Revenue for Staff

Particulars	May	June
Hourly Rates for Staff	470	470
* Billable Hours for Staff	6,480	4,580
Total Revenue from Staff Billing	30,45,600	21,52,600

Managers Compensation

Particulars	May	June
Hourly Compensation Rate for Manager	265	265
* Hours for Managers	2,480	2,480
Manager Compensation	657,200	657,200

Staff Compensation

Particulars	May	June
Hourly Rates for Staff	145	145
* Hours for Staff	9,680	9,680
Staff Compensation	14,03,600	14,03,600
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