Engineering Inc. provides structural engineering services for its clients. Billable hours for each month of the first quarter of this coming budget period are expected to be as follows: 

January: 2,000 February: 2,200 March: 3,000 The average hourly billing rate is estimated to be \($150\).

Required

a. Prepare a services revenue budget for Engineering Inc. for each month of the first quarter and include a total column for the quarter. This is similar to a sales budget except sales are measured in labor hours rather than in units, and revenue is measured as an average hourly billing rate rather than a sales price per unit.

b. The average cost for each hour of direct labor is expected to be \($50.\) Assume total direct labor hours are expected to be 20 percent higher than billable direct labor hours presented above. This is caused by employees working on projects that are not billable to clients (for example, recruiting and community work). Prepare a direct labor budget for each month of the first quarter and include a total column for the quarter. This budget will have three lines: projected direct labor hours, labor rate per hour, and total direct labor cost.

c. Assume the manager of the company is given a monthly bonus if actual billable hours exceed budgeted billable hours. How might this influence the manager’s estimate of monthly billable hours for budgeting purposes? What effect might this have on the company?