Reference no: EM132476256

Howard Cooper, the president of Fanning Computer Services, needs your help. He 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 2019.

Standard rate and variable costs
Service rate per hour                                                    $ 83.00
Labor cost                                                                  35.00
Overhead cost                                                             7.00
Selling, general, and administrative
                                                                                 3.70
cost
Expected fixed costs
Facility maintenance                                                  $518,000
Selling, general, and administrative                                145,000

Required:

Question A. the pro forma income statement that would appear in the master budget if the firm expects to provide 39,000 hours of services in 2019.

Question B. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Fanning charges customers $78 per hour, the firm can achieve 46,000 hours of services. a flexible budget using the consultant's assumption.

Question C. The same consultant also suggests that if the firm raises its rate to $88 per hour, the number of service hours will decline to 33,000. a flexible budget using the new assumption.

Problem 1: The same consultant also suggests that if the firm raises its rate to $88 per hour, the number of service hours will decline to 33,000. Prepare a flexible budget using the new assumption.