Question 2: R&H Cube is a small tax consulting firm offering its services to both corporate and private clients. R&H has installed a standard costing system whereby its CEO can analyze variances at the end of each year. The (static) budget for Year 2 is set equal to the actual data of Year 1. In Year 1, R&H served 500 clients, generating total revenues of $225,000. Its variable costs in Year 1 consisted of $67,500 professional labor costs, and $20,000 administrative support costs. R&Hs fixed cost in Year 1 was 45,000. R&Hs actual data for Year 2 is as follows: an actual number of 450 clients served resulted in actual revenues of $220,000; actual professional labor cost was $63,000; actual administrative support cost was $19,000; and actual fixed cost was $47,000. Required: a. Conduct a comprehensive variance analysis based on the above data. Compute sales-volume variances and flexible-budget variances for revenues, professional labor costs, administrative support costs, and for fixed costs. b. After attending a seminar on activity-based costing, the CEO of R&H decides to track revenues and costs separately for corporate and private clients, as the corporate clients tend to generate higher per-client revenues but also consume more resources. Additional analysis reveals the following data:

Corporate Clients Private Clients Number of clients in Year 1 250 250 Number of clients in Year 2 270 180 Average revenues in Year 1 $700 $200 Average professional labor cost in Year 1 $200 $70 Average administrative support cost in Year 1 $60 $20

Now, set up a revised flexible budget based on the new information and calculate again the flexible-budget variances for revenues, for professional labor costs, and for administrative support costs based. Compare your findings with those from part a., above. Interpret the differences in terms of how efficient the company really was.

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