Rami and Associates is an accounting firm that projects revenues based on billable hours. The company expects to charge 8,000 hours to clients in the first quarter, 9,000 hours in the second quarter, 7,000 hours in the third quarter, and 8,500 hours in the fourth quarter. The average hourly billing rate is expected to be $100.

Required

a. Prepare a services revenue budget for each quarter and include a column for the year ending December 31. 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. Since the manager of the company is given a bonus if actual billable hours exceed budgeted billable hours, the manager intentionally underestimated the number of expected billable hours for each quarter. How might this underestimate affect the company?