Markoff is the partner of a small CPA firm who was recently engaged to do the audit of Montclair Enterprises, and for which the agreed upon audit fee was $73,500. Their price quote was based upon their usual cost-plus 50%, based on the cost of staff involved. Markoff figures that marking the professional costs up by a factor of 50% is more than enough to cover the other costs of running the firm.

The original price quote was based on the following budgeted staff needs and costs:

MONTCLAIR ENTERPRISES AUDIT BUDGET

Hourly cost Budgeted hours budgeted cost

Manager 120 50 6,000

Senior 90 200 18,000

Junior 50 500 25,000

total 800 49,000

Markoff reviewed the final results of the audit with glee! He was happy that his staff had gotten the job done using only 750 hours rather than the 800 originally budgeted, based upon the following actual summary of hours used on the job. He plans on taking everyone involved out for a special dinner!

MONTCLAIR ENTERPRISES AUDIT TIME SUMMARY

Actual hours

Manager 150 hrs

senior 400

Junior 200

750 hrs

REQUIRED:

Using the general variance framework that you have learned from Managerial Accounting and in this course, do a complete analysis. Should Markoff be happy?

Back up your comments and conclusion completely, pointing out the bottom line on this whole thing as well as pointing out any particular areas of concern that need to be addressed.