Howard Cooper, the president of Franklin Computer Services, needs your help. He wonders about the potential effects on the firms net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2019.

Standard rate and variable costs
Service rate per hour	$	83.00
Labor cost		37.00
Overhead cost		6.40
Selling, general, and administrative cost		3.90
Expected fixed costs
Facility maintenance	$	522,000
Selling, general, and administrative		146,000

Required:

1. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 36,000 hours of services in 2019.

2. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultants analysis, if Franklin charges customers $78 per hour, the firm can achieve 44,000 hours of services. Prepare a flexible budget using the consultants assumption.

3. The same consultant also suggests that if the firm raises its rate to $88 per hour, the number of service hours will decline to 29,000. Prepare a flexible budget using the new assumption.

a

FRANKLIN COMPUTER SERVICES
Pro Forma Income Statement
Master Budget
Services revenueselected answer correct	not attempted
Variable costs:
Overhead costselected answer correct	not attempted
Labor costselected answer correct	not attempted
Selling, general, and administrative costsselected answer correct	not attempted
not attempted	not attempted
Contribution marginselected answer correct	$0
Fixed costs:
Selling, general, and administrative costsselected answer correct	not attempted
not attempted	not attempted
not attempted	not attempted
Net incomeselected answer correct	$0

b

FRANKLIN COMPUTER SERVICES
Pro Forma Income Statement
Flexible Budget
Services revenueselected answer correct	not attempted
Variable costs:
Overhead costselected answer correct	not attempted
Labor costselected answer correct	not attempted
Selling, general, and administrative costsselected answer correct	not attempted
not attempted	not attempted
Contribution marginselected answer correct	$0
Fixed costs:
Facility maintenanceselected answer correct	not attempted
Selling, general, and administrative costsselected answer correct	not attempted
not attempted	not attempted
Net incomeselected answer correct	$0

c

FRANKLIN COMPUTER SERVICES
Pro Forma Income Statement
Flexible Budget
Services revenueselected answer correct	not attempted
Variable costs:
Labor costselected answer correct	not attempted
Overhead costselected answer correct	not attempted
Selling, general, and administrative costsselected answer correct	not attempted
not attempted	not attempted
Contribution marginselected answer correct	$0
Fixed costs:
Selling, general, and administrative costsselected answer correct	not attempted
not attempted	not attempted
not attempted	not attempted
Net incomeselected answer correct	$0