Question

QUESTION 2

1. VF is a small accounting firm supporting wealthy individuals in their preparation of annual income tax statements. Every December, VF sends out a short survey to their customers, asking for the information required for preparing the tax statements. Based on 24 years of experience, VF categorizes their cases into the following groups:

   • Group 1 (new customers, easy): 25 percent of cases

   • Group 2 (new customers, complex): 20 percent of cases

   • Group 3 (repeat customers, easy): 30 percent of cases

   • Group 4 (repeat customers, complex): 25 percent of cases

   Here, “easy” versus “complex” refers to the complexity of the customer’s earning situation. In order to prepare the income tax statement, VF needs to complete the following set of activities. Processing times (and even which activities need to be carried out) depend on which group a tax statement falls into. All of the following processing times are expressed in minutes per income tax statement.  

   Group	Filing	Initial Meeting	Preparation	Senior Accountant Review	Writing
   1	20	30	120	20	50
   2	40	90	300	60	80
   3	20	No	150	5	60
   4	40	No	200	30	60

   The activities are carried out by the following three persons:

   • Administrative support person: filing and writing.

   • Senior accountant (who is also the owner): initial meeting, review by senior accountant.

   • Junior accountant: preparation.

   Assume that all three persons work eight hours per day and 22 days a month. For the following questions, assume the product mix as described above. Assume that there are 50 income tax statements arriving each month.

g. Due to the recent regulation change, the writing stage now takes 30 minutes longer for all cases, what is the new implied utilization rate for the administrative support person? Round your answer to the nearest whole number and ignore the percentage sign. For example, if your answer is 0.45 or 45%, fill in 45; if your answer is 0.76 or 76%, fill in 76.

Your answer is .

Answer 1

The characterization of cases of firm are as given below:

• Group 1 (new customers, easy): 25 percent of cases

• Group 2 (new customers, complex): 20 percent of cases

• Group 3 (repeat customers, easy): 30 percent of cases

• Group 4 (repeat customers, complex): 25 percent of cases

Now,

Since, the writing time has increased by 30 minutes in each case,

Hence new writing time would be -

Group 1 - 50+30 = 80 minutes

Group 2 - 80+30 = 110 minutes

Group 3 - 60+30 = 90 minutes

Group 4 - 60+30 = 90 minutes

Table for total work load of three resources -

Resource	Minutes per month	1	2	3	4	Total work load	Implied Utilization
Administration	10560	1250	1500	1650	1625	6025	6025/10560 =0.5705 = 57%
Senior	10560	625	1500	75	375	2575	2575/10560 = 0.2438 = 24%
Junior	10560	1500	3000	2250	2500	9250	9250/10560 = 0.8759 = 88%

Calculations are as follows :

Administration = % of statements for the group x Total number of income tax statements x (Filing + Review writing)

Administration 1 = (0.25 x 50) x (20+80) = 1250

Administration 2 = (0.2 x 50) x (40+110) = 1500

Administration 3 = (0.3 x 50) x (20+90) = 1650

Administration 4 = (0.25 x 50) x (40 + 90) = 1625

Senior = % of statements for the group x Total number of income tax statements x ( Initial + Senior Accountant review)

Senior 1 = (0.25 x 50) x (30+20) = 625

Senior 2 = (0.2 x 50) x (90+60) = 1500

Senior 3 = (0.3 x 50) x (0+5) = 75

Senior 4 = (0.25 x 50) x (0+30) = 375

Junior = % of statements for the group x Total number of income tax statements x Meeting Preparation

Junior 1 = (0.25 x 50) x 120 = 1500

Junior 2 = (0.2 x 50) x 300 = 3000

Junior 3 = (0.3 x 50) x 150= 2250

Junior 4 = (0.25 x 50) x 200 = 2500

Hence,

The new implied utilization are -

Administration = 57%

Senior = 24%

Junior = 88%