Tommie Okes, the president of Star Computer Services, needs your help. Fie wonders about the potential effects on the firm’s net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2007.

Required

a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 30,000 hours of services in 2007.

b. A marketing consultant suggests to Mr. Okes that the service rate may affect the number of service hours that the firm can achieve. According to the consultant’s analysis, if Star charges customers \($75\) per hour, the firm can achieve 38,000 hours of services. Prepare a flexible budget using the consultant’s assumption.

c. The same consultant also suggests that if the firm raises its rate to \($85\) per hour, the number of service hours will decline to 25,000. Prepare a flexible budget using the new assumption.

d. Evaluate the three possible outcomes you determined in Requirements

a, b, and c and recommend a pricing strategy.

Transcribed Image Text:

Standard rate and variable costs Service rate per hour Labor cost Overhead cost General, selling, and administrative cost Expected fixed costs Facility repair General, selling, and administrative $80.00 40.00 7.20 4.30 $525,000.00 150,000.00