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&H's fixed cost in Year 1 was 45,000.

R&H's 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