Could any one help with the budgeting assignment in management accounting?

Saara Lehtonen is the president and owner of Lehtonen Consulting Inc. (LCI), a market research company. The company provides various marketing research services including analysis of customer preferences, comparison of client products with competitor products and collection of survey data via telephone calls.1 The company's mission statement is as follows: We provide leading-edge marketing research and analysis to enable our clients to compete more effectively. You have recently been hired as the company's accountant and have met with Saara to go over some of her concerns.2 Saara is concerned that the company's profit is no longer growing. She notes that some of the jobs, like the small market research contracts, are losing money. She would like to refocus the company efforts on jobs that provide more profit (Appendix I).3 Her sister-in-law runs an engineering firm and told her that ABC helped her company focus on the most profitable clients. She wonders if that would be a good fit for LCI.4 One way Saara has thought she could free up some resources is by outsourcing the making of survey calls. Recently she has been questioning if this is one of the company's core competencies and asked whether it would be best to hire an outside service provider. Some preliminary information on potential companies that could perform the calls is included in Appendix II.5 Lastly, one of the company's sales representatives recently complained to Saara about how his sales commissions are calculated. The sales representative argued that his sales commissions are penalized because overhead is allocated based on analyst hours only. He believes that sales representatives who bring in jobs involving collection of survey data receive commissions that are too high because their jobs require fewer analyst hours, hence bear too little overhead cost. Saara would like you to evaluate the design of the job costing system.6 The current year's budgeted costs and overhead allocation are provided in Appendix III.7 Saara has asked you to draft a memo containing your analysis of the issues and your preliminary recommendations. Ignore any possible income tax effects.8 Appendix I Data for Three Recent Jobs Job A Job B Job data: Analyst hours 65 Analyst salaries (average $ 1,625 $25 per hour) Job C 45 $ 1,125 4 $ 100 Survey caller hours 0 30 540 Survey caller wages ($15 $$ 450 $ 8,100 per hour) Job profit: Revenue $ 6,000 $ 6,000 $15,000 Direct costs: Analyst salaries (1,625) (1,125) (100) Survey caller wages (450) (8,100) Overhead allocation ($70 (4,550) (3,150) (280) per analyst hour) Profit before commission (175) 1,275 6,520 Sales commission @ 40% (510) (2,608) Pre-tax profit $ (175) $ 765 $ 3,912 Job A: Analysis of customer purchase data collected by an online retailer. This customer typically requests several studies per year. The sales representative for this job complained about the high overhead charge and its effect on the sales commission. Saara is considering eliminating this client, as they are not making a profit. Job B: Employee satisfaction survey for a new customer, which is a retail company. LCI does not usually conduct employee satisfaction surveys, but the sales representative is hoping to sell additional services to this customer. Job C: Customer preferences survey for a food manufacturer. This is a recurring job, in which the client provided the survey questions and planned to perform its own analysis of the data. Therefore, the job required only a small amount of analyst time to review the survey results for possible data entry errors and to prepare the data for transmission to the client. Appendix II Notes on Possible Outsourcing of Survey Call Work Many companies currently offer survey call services. Cost estimates were obtained from two companies as follows. O'Connell Research O'Connell Research is a Canadian market research company that offers market research as well as mail, telephone and online survey services. For telephone surveys, O'Connell charges a flat set-up fee of $500 per survey plus $28 per hour for caller time. DFNC DFNC is a telephone survey company located in the Philippines. The company charges a flat set-up fee per survey plus an hourly rate for caller time. All fees are payable in Philippine Pesos. At current exchange rates, the set-up fee amounts to $200 Cdn., and the hourly rate amounts to $16 Cdn. per hour. In recent years, the Canadian dollar has declined approximately 20% relative to the Philippine Peso. Notes: Direct costs Overhead Employee salaries and wages: President's salary150,000 Analyst salaries (16,000 hours @ $25)1400,000 Sales representative commissions2140,000 Survey caller wages (44,000 hours @ $15)3660,000 Call centre supervisor salary470,000 Other general and administrative salaries180,000 Payroll taxes and employee benefits5480,000 Telephone costs659,000 Rent, heat and lights750,000 Depreciation - office furniture and equipment840,000 Miscellaneous office expenses991,000 1,200,000 1,120,000 Allocate overhead based on analyst hours16,000Overhead rate per analyst hour70.00$ per analyst hour Appendix III Budgeted Cost Allocations Notes: 1. Analysts receive a flat salary of $52,000 per year, which averages $25 per hour. Their time and cost is traced to individual jobs. Analysts are rarely idle and the company is able to adjust staff volumes to the level of work on hand. 2. Sales representatives locate clients, sell market research services, negotiate the price for each job and coordinate the work with analyst(s). Sales representatives receive commissions based on 40% of the pre-tax profit for their jobs (see Appendix I). 3. Survey callers work as needed to conduct telephone surveys. They are paid $15 per hour and trace their time to individual jobs. 60 surveys were completed in the year. 4. The supervisor manages the work of the survey callers and is paid a flat salary. 5. Payroll taxes and employee benefits average 30% of salaries and wages. 6. Telephone costs include approximately $5,000 per year for basic local and long distance telephone services for the office, plus approximately $54,000 per year for the call centre. 7. Rent, heat and lights are for the entire office space. Approximately 30% of the space is used by analysts, 50% by the call centre and 20% by general administration. The call centre space could easily be subleased to another company in the same building that would like to expand at the same rate. 8. Of the depreciation for office furniture and equipment, approximately 30% relates to the analysts, 40% to the call centre and 30% to general administration. Assets used by the call centre could be sold for $1,000. 9. Miscellaneous office expenses include items such as office supplies, insurance, etc. Overhead costs include all costs that are not traced directly to jobs. Overhead is allocated to jobs based on number of analyst hours, using a predetermined rate based on the annual budget ($70 per hour for the current year)