Reference no: EM133000319

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 $90,120. 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 - Partner 0.4hour, Manager 0.1hour, Senior consultant 0.5hour

Complex Individual Return - Partner 0.07hour, Manager 0.13hour, Senior consultant 0.40hour, Consultant - 0.40hour

Simple Individual Return Senior consultant 0.2hour,
Consultant 0.8hour

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 $42,000 each. All other operating data remain unchanged. The manager will share 8% of any profit over $510,000 before bonus.

Required:

Problem 1. What is the budgeted total cost for overtime hours worked by senior consultants?

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

Problem 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.