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Paton Consultants is a consulting firm that engages clients in regards to their transfer pricing. The following Table presents the most recent period's budget and

Paton Consultants is a consulting firm that engages clients in regards to their transfer pricing. The following Table presents the most recent period's budget and actual performance for that period. Revenue is based on hours billed to clients.

Budget Actual
Revenue $ 1,000,000 $ 1,200,000
Direct Labor $ 800,000 $ 990,000
Fixed Overhead $ 100,000 $ 100,220
Profit $ 100,000 $ 109,780

1.Assume that Paton's actual hourly rate that they billed clients at was no different than the planned hourly rate (thus, the difference between budgeted revenue and actual is solely because Paton was able to bill more hours). Should Paton be satisfied with the variance in Direct Labor? Why or why not?

2.Name two reasons why direct labor expense might be different than expected, even after adjusting for the increase in hours billed.

3.Paton's CEO is pleased with the increase in billable hours booked over actual and has decided to give her employees a bonus. Give at least one reason why this might be a good idea, and at least two reasons why this might be counterproductive.

4.While Paton's CEO is happy with the performance, she's worried that she didn't set an ambitious enough budget from the get-go. She's thinking of increasing the revenue projection for the next period. Give at least one reason why this might be a good idea and at least two reasons why this might be counterproductive.

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