As an example. AccuTax Inc. provides tax services to small firms and individuals. It expects to have the following revenues from preparing tax returns for the year ended December 31, 2019: $ 1.000.000 Tax returns for business firms Individual tax returns: Simple returns $1,640,000 Complex returns 1.200.000 Total revenues 2,840,000 $3,840.000 The firm has 2 partners, 8 senior consultants, and 20 consultants. On average, a partner works 50 hours a week and is paid $250.000 a year. Both senior consultants and consultants are expected to work 40 hours a week and are paid, respectively. $90,000 and $60,000 a year. The annual compensation for supporting staff is $40,000 per full-time equivalent. The number of supporting staff varies with the size of the firm. In general, one supporting staff person is needed for every 2 partners, one for every 4 senior consultants, and one for every 10 consultants. After allowing for vacation, sickness, and continuing education days, the weeks per year available to work with clients are 40 weeks for each partner. 45 weeks for each senior consultant, and 48 weeks for each consultant. All partners and senior consultants are full-time professional staff members. The firm estimates the following required proportions of professional staff times for each hour spent to complete each of the three different classifi- cations of tax returns: Simple Individual Partner Senior consultant Consultant Business Return 40% 60% Complex Individual 10% 40% 50% 10% 90% General and administrative expenses are estimated as $150.000 per year, plus 10% of the total payroll. The firm charges $250 per hour for business returns, $100 per hour for individ- ual returns with complicated tax matters, and $50 per hour for simple individual tax returns. The budgeted revenues and the total hours for each of the returns for the coming year are as follows: Budgeted Revenue $1,000,000 Hourly Charge Rate $ 250 Required Hours 4.000 Business returns Individual returns: Simple returns Complex returns Total 1.640,000 1.200.000 $3.840.000 50 100 32,800 12.000 48.800 The following table shows the professional staff requirements for the budgeted revenue: Consultant Total Hours Partner 4,000 1.600 12,000 1.200 32.800 48.800 2.800 50 Senior Consultant 2.400 4.800 3,280 10.480 40 6.000 29.520 35.520 40 Business returns Complex individual returns Simple individual returns Total hours Hours per week (given) Equivalent number of work weeks Weeks per year/professional staff (given) Number of professional staff members needed 56 262 888 40 45 48 1.4 5.8 18.5 The budget shows that Accu Tax has sufficient professional staff to support the expected activity. Assuming Accu Tax plans no change in personnel and maintains the same staff level. its budgeted operating income will be $808,000, as shown in Exhibit 10.18. EXHIBIT 10.18 Budgeted Operating Income with No Change in Staffing $3,840,000 ACCUTAX INC. Budgeted Operating Income For the Year Ended December 31, 2019 Revenue Payroll expenses: Partners 2 x $250,000 = $ 500,000 Senior consultants 8x $ 90,000 = 720.000 Consultants 20 x $ 60,000 = 1.200,000 Supporting staff 5' x $ 40,000 = 200.000 General and administrative $150.000 + (10% x $2,620.000) = expenses Operating Income 2.620.000 412.000 $ 808,000 *5 =(22) + (4) + (2010) = 1 + 2 + 2. Refer to the AccuTax Inc. exhibit One of the partners is planning to retire at the end of the year. May Higgins, the sole remaining partner, plans to add a manager at an annual salary of $91,560. She expects the manager to work, on average, 45 hours a week for 45 weeks per year. She plans to change the required staff time for each hour spent to complete a tax return to the following: Simple Individual Return Partner Manager Senior consultant Consultant Business Return 0.4 hour 0.1 hour 0.5 hour Complex Individual Return 0.07 hour 0.13 hour 0.40 hour 0.40 hour 0.2 hour 0.8 hour The manager is salaried and earns no overtime pay. Senior consultants are salaried but receive time and a half for any overtime worked. The firm plans to keep all the senior consultants and adjust the number of consultants as needed including employing part- time consultants, who also are paid on an hourly basis. Higgins has also decided to have five supporting staff at $45,000 each. All other operating data remain unchanged. The manager will share 12% of any profit over $630,000 before bonus. Required: 1. What is the budgeted total cost for overtime hours worked by senior consultants? 2. How many full-time consultants should be budgeted? 3. Determine the manager's total compensation and total pretax operating income for the firm, assuming that the revenues from preparing tax returns remain unchanged. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the budgeted total cost for overtime hours worked by senior consultants? Budgeted total cost for overtime Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 How many full-time consultants should be budgeted? (Round down your answer to nearest whole number.) Number of full-time consultants Determine the manager's total compensation and total pretax operating income for the firm, assuming that the revenues from preparing tax returns remain unchanged. AccuTax Inc. Budgeted Operating Income For the Year ended December 31, 2019 Revenue Payroll expenses: Partner Manager Senior consultants-base pay Senior consultantspay for overtime hours Consultants-Full-time ConsultantsPart-time Support staff General and administrative expenses Operating income before bonus to manager Less: Manager's bonus Operating income before taxes Total compensation for the manager: Salary Bonus $ 0 $ 0 $ 0 Total $ 0 As an example. AccuTax Inc. provides tax services to small firms and individuals. It expects to have the following revenues from preparing tax returns for the year ended December 31, 2019: $ 1.000.000 Tax returns for business firms Individual tax returns: Simple returns $1,640,000 Complex returns 1.200.000 Total revenues 2,840,000 $3,840.000 The firm has 2 partners, 8 senior consultants, and 20 consultants. On average, a partner works 50 hours a week and is paid $250.000 a year. Both senior consultants and consultants are expected to work 40 hours a week and are paid, respectively. $90,000 and $60,000 a year. The annual compensation for supporting staff is $40,000 per full-time equivalent. The number of supporting staff varies with the size of the firm. In general, one supporting staff person is needed for every 2 partners, one for every 4 senior consultants, and one for every 10 consultants. After allowing for vacation, sickness, and continuing education days, the weeks per year available to work with clients are 40 weeks for each partner. 45 weeks for each senior consultant, and 48 weeks for each consultant. All partners and senior consultants are full-time professional staff members. The firm estimates the following required proportions of professional staff times for each hour spent to complete each of the three different classifi- cations of tax returns: Simple Individual Partner Senior consultant Consultant Business Return 40% 60% Complex Individual 10% 40% 50% 10% 90% General and administrative expenses are estimated as $150.000 per year, plus 10% of the total payroll. The firm charges $250 per hour for business returns, $100 per hour for individ- ual returns with complicated tax matters, and $50 per hour for simple individual tax returns. The budgeted revenues and the total hours for each of the returns for the coming year are as follows: Budgeted Revenue $1,000,000 Hourly Charge Rate $ 250 Required Hours 4.000 Business returns Individual returns: Simple returns Complex returns Total 1.640,000 1.200.000 $3.840.000 50 100 32,800 12.000 48.800 The following table shows the professional staff requirements for the budgeted revenue: Consultant Total Hours Partner 4,000 1.600 12,000 1.200 32.800 48.800 2.800 50 Senior Consultant 2.400 4.800 3,280 10.480 40 6.000 29.520 35.520 40 Business returns Complex individual returns Simple individual returns Total hours Hours per week (given) Equivalent number of work weeks Weeks per year/professional staff (given) Number of professional staff members needed 56 262 888 40 45 48 1.4 5.8 18.5 The budget shows that Accu Tax has sufficient professional staff to support the expected activity. Assuming Accu Tax plans no change in personnel and maintains the same staff level. its budgeted operating income will be $808,000, as shown in Exhibit 10.18. EXHIBIT 10.18 Budgeted Operating Income with No Change in Staffing $3,840,000 ACCUTAX INC. Budgeted Operating Income For the Year Ended December 31, 2019 Revenue Payroll expenses: Partners 2 x $250,000 = $ 500,000 Senior consultants 8x $ 90,000 = 720.000 Consultants 20 x $ 60,000 = 1.200,000 Supporting staff 5' x $ 40,000 = 200.000 General and administrative $150.000 + (10% x $2,620.000) = expenses Operating Income 2.620.000 412.000 $ 808,000 *5 =(22) + (4) + (2010) = 1 + 2 + 2. Refer to the AccuTax Inc. exhibit One of the partners is planning to retire at the end of the year. May Higgins, the sole remaining partner, plans to add a manager at an annual salary of $91,560. She expects the manager to work, on average, 45 hours a week for 45 weeks per year. She plans to change the required staff time for each hour spent to complete a tax return to the following: Simple Individual Return Partner Manager Senior consultant Consultant Business Return 0.4 hour 0.1 hour 0.5 hour Complex Individual Return 0.07 hour 0.13 hour 0.40 hour 0.40 hour 0.2 hour 0.8 hour The manager is salaried and earns no overtime pay. Senior consultants are salaried but receive time and a half for any overtime worked. The firm plans to keep all the senior consultants and adjust the number of consultants as needed including employing part- time consultants, who also are paid on an hourly basis. Higgins has also decided to have five supporting staff at $45,000 each. All other operating data remain unchanged. The manager will share 12% of any profit over $630,000 before bonus. Required: 1. What is the budgeted total cost for overtime hours worked by senior consultants? 2. How many full-time consultants should be budgeted? 3. Determine the manager's total compensation and total pretax operating income for the firm, assuming that the revenues from preparing tax returns remain unchanged. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the budgeted total cost for overtime hours worked by senior consultants? Budgeted total cost for overtime Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 How many full-time consultants should be budgeted? (Round down your answer to nearest whole number.) Number of full-time consultants Determine the manager's total compensation and total pretax operating income for the firm, assuming that the revenues from preparing tax returns remain unchanged. AccuTax Inc. Budgeted Operating Income For the Year ended December 31, 2019 Revenue Payroll expenses: Partner Manager Senior consultants-base pay Senior consultantspay for overtime hours Consultants-Full-time ConsultantsPart-time Support staff General and administrative expenses Operating income before bonus to manager Less: Manager's bonus Operating income before taxes Total compensation for the manager: Salary Bonus $ 0 $ 0 $ 0 Total $ 0