Question

Adrian and Pells (AP) is an advertising agency that uses flexible budgeting for both planning and control. One of its clients, Troika Toys, asked AP to prepare an ad campaign for a new toy. AP’s contract with Troika calls for paying AP $ 120 per design hour for between 150 and 200 hours.
AP has a staff of ad campaign designers who prepare the ad campaigns. Customers are billed only for the time designers work on their project. Partner time is not billed directly to the customer. As part of the planning process, Sue Bent, partner- in- charge of the Troika account, prepared the fol-lowing flexible budget. “Authorized Design Hours” is the estimated range of time AP expects the job to require and what the client agrees to authorize.


AP’s executive committee reviewed Bent’s budget and approved it and the Troika contract. After some preliminary work, Troika liked the ideas so much it expanded the authorized time range to be between 175 and 250 hours. Bent and her design team finished the Troika project. Two hundred and twenty design hours were logged and billed to Troika at the contract price ($ 120 per hour). Upon completion of the Troika campaign, the following revenues and costs had been accumulated:
TROIKA TOYS
Actual Costs Incurred
Revenue ($ 120 220) ........ $ 26,400
Design labor ............ 10,320
Artwork .............. 4,350
Office and occupancy costs ..... 1,690
Total costs ........ $ 16,360
Profits ............ $ 10,040

AP’s accounting manager keeps track of actual costs incurred by AP on each account. AP employs a staff of designers. Their average salary is $ 45 per hour. New designers earn less than the average; those with more experience earn more. The actual design labor costs charged to each project are the actual hours times the designer’s actual hourly cost. Artwork consists of both in- house and out- of- house artists who draw up the art for the ads designed by the designers. Office and occupancy costs consist of a charge per designer hour to cover rent, photocopying, and phones, plus actual long-distance calls, faxes, and overnight delivery services.

Required:
Prepare a table that reports on Sue Bent’s performance on the Troika Toys account and write a short memo to the executive committee that summarizes her performance on thisproject.


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  • CreatedDecember 15, 2014
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