10-51    Budgeting for a Service Firm Refer to the AccuTax, Inc., example in the chapter. One of the part- ners 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 $90,000. 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 com- plete a tax return to the following:

 

Â	  Business Return	Complex Individual Return	Simple Individual Return
Partner Manager Senior consultant Consultant	0.3 hour 0.2 hour 0.5 hour —	0.05 hour 0.15 hour 0.40 hour 0.40 hour	— — 0.2 hour 0.8 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. The partner has also decided to have five supporting staff at $40,000 each. All other operating data remain unchanged. The manager will share 10 percent of any profit over

$500,000 before bonus.

Required  Set up an Excel spreadsheet to answer the following questions:

1.    What is 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.