Refer to the AccuTax Incorporated exhibit One of the partners is planning to retire at the end of the year. May Higgins, the sole remaining partner, plans to add a manager at an annual salary of $$92,160.$ She expects the manager to work, on average, $45$ hours a week for $45$ weeks per year. She plans to change the required staff time for each hour spent to complete a tax return to the following:

Business Return Complex Individual Return Simple Individual Return

Partner $0\mathrm{.}4$ hour $0\mathrm{.}07$ hour $$

Manager $0\mathrm{.}1$ hour $0\mathrm{.}13$ hour $$

Senior consultant $0\mathrm{.}5$ hour $0\mathrm{.}40$ hour $0\mathrm{.}2$ hour

Consultant $0\mathrm{.}40$ hour $0\mathrm{.}8$ hour

The manager is salaried and earns no overtime pay. Senior consultants are salaried but receive time and a half for any overtime worked. The firm plans to keep all the senior consultants and adjust the number of consultants as needed including employing part$-$time consultants, who also are paid on an hourly basis. Higgins has also decided to have five supporting staff at $$55,000$ each. All other operating data remain unchanged. The manager will share $6\%$ of any profit over $$460,000$ before bonus.

Required:

$1.$ What are the budgeted total cost for overtime hours worked by senior consultants?

$2.$ How many full$-$time consultants should be budgeted?

$3.$ Determine the manager$$s total compensation and total pretax operating income for the firm, assuming that the revenues from preparing tax returns remain unchanged.

AccuTax Incorporated$-$ The firm has $2$ partners, $8$ senior consultants, and $20$ consultants. On average, a partner works $50$ hours a week and is paid $$250,000$ a year. Both senior consultants and consultants are expected to work $40$ hours a week and are paid, respectively, $$90,000$ and $$60,000$ a year. The annual compensation for supporting staff is $$40,000$ per full$-$time equivalent. The number of supporting staff varies with the size of the firm. In general, one supporting staff person is needed for every $2$ partners, one for every $4$ senior consultants, and one for every $10$ consultants. After allowing for vacation, sickness, and continuing education days, the weeks per year available to work with clients are $40$ weeks for each partner, $45$ weeks for each senior consultant, and $48$ weeks for each consultant. All partners and senior consultants are full$-$time professional staff members. The firm estimates the following required proportions of professional staff times for each hour spent to complete each of the three different classifications of tax returns:

Business Return Simple Individual Complex Individual

Partner $40\%10\%$

Senior consultant $60\%10\%40\%$

Consultant $90\%50\%$

General and administrative expenses are estimated as $$150,000$ per year, plus $10$ percent of the total payroll. The firm charges $$250$ per hour for business returns, $$100$ per hour for individual returns with complicated tax matters, and $$50$ per hour for simple individual tax returns. The budgeted revenues and the total hours for each of the returns for the coming year are as follows:

Budgeted Revenue Hourly Charge Rate Required Hours

Business returns $ $1,000,000-$: $$250=4,000$

Individual returns:

Simple returns $1,640,000-$: $50=32,800$

Complex returns $1,200,000-$: $100=12,000$

Total $ $3,840,00048,800$

The following table shows the professional staff requirements for the budgeted revenue:

Total Hours Partner Senior Consultant Consultant

Business returns $4,0001,6002,400$

Complex individual returns $12,0001,2004,8006,000$

Simple individual returns $32,8003,28029,520$

Total hours $48,8002,80010,48035,520$

Hours per week $($given$)-$: $50-$: $40-$: $40$

$56262888$

Weeks per year per professional staff $($given$)-$: $40-$: $45-$: $48$

Number of professional staff members needed $1\mathrm{.}45\mathrm{.}818\mathrm{.}5$

The budget shows that AccuTax has sufficient professional staff to support the expected activity. Assuming AccuTax plans no change in personnel and maintains the same staff level, its budgeted operating income will be $$808,000,$ as shown in Exhibit $10\mathrm{.}18.$