A&R Quality Advisors is a small consulting firm offering quality audits and advising services to small and mid-sized manufacturing firms. Quality audits entail reviewing, checking, and documenting quality practices within a firm. Quality advising entails making recommendations for new or revised quality practices. Other firms in the area offer one or both of these services, although the competition for quality audit jobs is stronger than for quality advising. In addition to senior executives, A&R employees are either staff or managers. Staff employees are usually younger with less experience. Managers, who oversee the staff on jobs, are more experienced. The average hourly wage is $60 for staff and $150 for managers. (Both staff and managers are paid an annual salary; these hourly costs are based on 2,000 average annual hours worked.) Staff are expected to spend at least 90 percent of their time on billable work. Because of administrative work associated with supervising the staff and the expectation that managers will spend a portion of their time seeking new business, managers are expected to spend about 50 percent of their time on billable work. A&R employs ten staff and two managers. In addition to staff and manager costs, A&R has overhead and administrative costs of $4,500,000, of which about $1,500,000 is variable with respect to billable hours. Overhead and administrative costs include the non-billable cost of the staff and managers.

Selected information on billable hours expected for the next year follow.

Billable Audit Hours		Billable Advising Hours		Total Billable Hours
	Staff		Manager		Staff		Manager		Staff		Manager
Client 01	150		12		200		10		350		22
Client 02	70		10		0		0		70		10
Client 03	220		30		80		15		300		45
Client 49	40		2		0		0		40		2
Client 50	300		20		200		15		500		35
Total	8,500		1,200		9,500		800		18,000		2000

Additional info:

Total overhead=$45,00,000

Predetermined rate= $225

Client 02 will be billed $19000 for audit services next year

Variable overhead rate= $75/hr

Total cost= $11700

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

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

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

g. What is the expected profit of audit services next year?

h. What is the expected profit of advisory services next year?