Although not all clients use A&R for both services, about $70$ percent do$.$

A&R bills audit services based on billable hours and advising services at a fixed fee. The cost for audit services is determined by multiplying the billable hours by the quoted employee rates. Staff rates for the following year are $$200$ per hour, and manager rates are $$500$ per hour. The rates are set to meet the competition in the area.

To determine the cost $($not the price$)$ of the job, A&R uses a job costing system. To the employee costs $($not the billing rates$)$ is added an amount for overhead based on the predetermined rate and the billable hours in the job. The predetermined rate is based on expected billable hours.

Total revenue at A&R next year is expected to be $$8$ million.

The two founding partners of A&R are looking at these forecasts for next year and trying to decide whether to drop one of these services. $$We should probably become more focused, as we sometimes remind our clients.$$

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Required

What is the predetermined overhead rate for costing jobs in the following year?

How much will Client $02$ be billed for audit services next year?

How much will the job costing system report as the cost of Client $02$ audit services next year?

What will be the total revenues from audit services next year based on the expected hours and the billing rates?

Based on the job costing system, what will the reported cost of audit services be next year?

Based on the job costing system, what will be the cost of advisory services?

What is the expected profit of audit services next year?

What is the expected profit of advisory services next year?

Write a memo for A&R senior executives outlining some issues they should consider when making a decision about the two product lines.