Ch10 #7

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 $90,840. 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:

Business Return Complex Individual Return Simple Individual Return

Partner 0.4 hour 0.07 hour

Manager 0.1 hour 0.13 hour

Senior consultant 0.5 hour 0.40 hour 0.2 hour

Consultant 0.40 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 $54,000 each. All other operating data remain unchanged. The manager will share 7% of any profit over $570,000 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 managers total compensation and total pretax operating income for the firm, assuming that the revenues from preparing tax returns remain unchanged.