109.5 Onupiel . Revised operating budget: consulting firm Clark Services, a division of General Service Industrie eral Service Industries operating in New Zealand, offers consulting services to clients. The corporate management at General Service is pleased with the performance of Clark Services for the first nine months of the current year and has recommended that the divisional manager of Clark Services, Dick Smyth, submit a revised budget for the remaining quarter, as the division has exceeded the budgeted operating profit for the year to date by 20 per cent. An unexpected increase in the number of billed hours over the original plan is the main reason for this increase in profit. The original operating budget for the first three quarters for Clark Services is as follows: Clark Services Operating Budget 1st quarter 2nd quarter 3rd quarter Nine months $ 945 000 1 265 625 $2 210 625 100 000 $2 310 625 $ 945 000 1 265 625 $2 210 625 100 000 $2 310 625 $ 945 000 1 265 625 $2 210 625 100 000 $2 310 625 $2 835 000 3796 875 $6 631 875 300 000 $6 931 875 Revenue Consulting fees: Management consulting Computer system consulting Total consulting fees Other revenue Total revenue Expenses Consultant salary Travel General and administrative Depreciation Corporate allocation Total expenses Operating profit $1 160 250 136 875 300 000 120 000 150 000 $1 867 125 $ 443 500 $1 160 250 136 875 300 000 120 000 150 000 $1 867 125 $ 443 500 $1 160 250 136 875 300 000 120 000 150 000 $1 867 125 $ 443 500 $3 480 750 410 625 900 000 360 000 450 000 $5 601 375 $1 330 500 PART THREE INFORMATION PURWA 15 for computer start work at the nagement consultant illed hours compared sed by an additional $150 000 for a ment has approved isting consultants, while employee on-costs and sed budget for the fourth quarter. Smyth will take the following information into accou anagement consulting and 15 for The division currently has 25 consultants on stat systems consulting. Three additional manageme g. Three additional management consultants have been hired to beginning of the fourth quarter in order to meet th ourth quarter in order to meet the increased client demand. hourly billing rate for consulting revenue will remain at $270 per hour for each managem and $225 per hour for each computer consultant. How er hour for each computer consultant. However, due to the increase in billed ho od billed hours will be increased by an with the plan during the first nine months, the budgeted bil 50 hours for each consultant (new and old) in the fourth qua paid monthly, are the same: $150 000 The budgeted annual salaries and actual annual salaries, pald onsultant. Corporate management has a management consultant and $138 000 for a computer consultant erit increase of 10 per cent at the beginning of the fourth quarter for all 25 existing consulta the new consultants will be compensated at the planned rate. The planned salary expense in the original budget includes an allowance for employee on- benefits amounting to 30 per cent of the annual salaries. However, the introduction of a corporatew bonus program will increase this amount to 40 per cent in the fourth quarter. The original plan assumes a fixed hourly rate for travel and other related expenses for each billing ho consulting. These are expenses that are not reimbursed by the client, and the previously determined hourly rate has proven to be adequate to cover these costs. Other revenue, derived from temporary rentals and interest, is expected to be the same in the fourth quarter as in each of the previous quarters. General and administrative expenses have been favourable at 7 per cent below the plan; this 7 per cent saving will be reflected in fourth-quarter expenses in the revised plan. Depreciation of office equipment and personal computers will stay constant at the projected straight-line rate. Due to the favourable performance during the first three quarters and the division's increased ability to absorb costs, the corporate management at General Service has increased the corporate expense allocated to the division by 50 per cent for the fourth quarter. Required: 1. Prepare a revised operating budget for the fourth quarter for Clark Services. This revised budget will be presented by Dick Smyth to General Service Industries. 2. What factors might cause an organisation to prepare a revised operating budget? Participative budgeting: manufacturer 109.5 Onupiel . Revised operating budget: consulting firm Clark Services, a division of General Service Industrie eral Service Industries operating in New Zealand, offers consulting services to clients. The corporate management at General Service is pleased with the performance of Clark Services for the first nine months of the current year and has recommended that the divisional manager of Clark Services, Dick Smyth, submit a revised budget for the remaining quarter, as the division has exceeded the budgeted operating profit for the year to date by 20 per cent. An unexpected increase in the number of billed hours over the original plan is the main reason for this increase in profit. The original operating budget for the first three quarters for Clark Services is as follows: Clark Services Operating Budget 1st quarter 2nd quarter 3rd quarter Nine months $ 945 000 1 265 625 $2 210 625 100 000 $2 310 625 $ 945 000 1 265 625 $2 210 625 100 000 $2 310 625 $ 945 000 1 265 625 $2 210 625 100 000 $2 310 625 $2 835 000 3796 875 $6 631 875 300 000 $6 931 875 Revenue Consulting fees: Management consulting Computer system consulting Total consulting fees Other revenue Total revenue Expenses Consultant salary Travel General and administrative Depreciation Corporate allocation Total expenses Operating profit $1 160 250 136 875 300 000 120 000 150 000 $1 867 125 $ 443 500 $1 160 250 136 875 300 000 120 000 150 000 $1 867 125 $ 443 500 $1 160 250 136 875 300 000 120 000 150 000 $1 867 125 $ 443 500 $3 480 750 410 625 900 000 360 000 450 000 $5 601 375 $1 330 500 PART THREE INFORMATION PURWA 15 for computer start work at the nagement consultant illed hours compared sed by an additional $150 000 for a ment has approved isting consultants, while employee on-costs and sed budget for the fourth quarter. Smyth will take the following information into accou anagement consulting and 15 for The division currently has 25 consultants on stat systems consulting. Three additional manageme g. Three additional management consultants have been hired to beginning of the fourth quarter in order to meet th ourth quarter in order to meet the increased client demand. hourly billing rate for consulting revenue will remain at $270 per hour for each managem and $225 per hour for each computer consultant. How er hour for each computer consultant. However, due to the increase in billed ho od billed hours will be increased by an with the plan during the first nine months, the budgeted bil 50 hours for each consultant (new and old) in the fourth qua paid monthly, are the same: $150 000 The budgeted annual salaries and actual annual salaries, pald onsultant. Corporate management has a management consultant and $138 000 for a computer consultant erit increase of 10 per cent at the beginning of the fourth quarter for all 25 existing consulta the new consultants will be compensated at the planned rate. The planned salary expense in the original budget includes an allowance for employee on- benefits amounting to 30 per cent of the annual salaries. However, the introduction of a corporatew bonus program will increase this amount to 40 per cent in the fourth quarter. The original plan assumes a fixed hourly rate for travel and other related expenses for each billing ho consulting. These are expenses that are not reimbursed by the client, and the previously determined hourly rate has proven to be adequate to cover these costs. Other revenue, derived from temporary rentals and interest, is expected to be the same in the fourth quarter as in each of the previous quarters. General and administrative expenses have been favourable at 7 per cent below the plan; this 7 per cent saving will be reflected in fourth-quarter expenses in the revised plan. Depreciation of office equipment and personal computers will stay constant at the projected straight-line rate. Due to the favourable performance during the first three quarters and the division's increased ability to absorb costs, the corporate management at General Service has increased the corporate expense allocated to the division by 50 per cent for the fourth quarter. Required: 1. Prepare a revised operating budget for the fourth quarter for Clark Services. This revised budget will be presented by Dick Smyth to General Service Industries. 2. What factors might cause an organisation to prepare a revised operating budget? Participative budgeting: manufacturer