Lepard Financial Services provides investment advice to individual and commercial clients. The following is the budgeted income
Question:
Lepard Financial Services provides investment advice to individual and commercial clients. The following is the budgeted income statement for the year ended December 31, 2023:
Lepard Financial Services Ltd.
Budgeted Income Statement
For the Year Ended December 31, 2023
Professional fees | 750,000 |
---|---|
Fixed expenses | |
Salary - Lepard | 84,000 |
Salary - Assistants | 96,000 |
Supplies | 20,000 |
Occupancy | 120,000 |
Communications | 20,000 |
Client relations | 40,000 |
380,000 | |
Inc. before tax | 370,000 |
Inc. tax expense | 111,000 |
Net income | 259,000 |
The firm’s staff consists of one financial advisor-owner (Lepard) and two assistants. Total annual budgeted hours for each employee is 2,000. The firm expects to complete 180 commercial files and 150 individual files during fiscal 2023.
Fees are based on time spent on each file by Lepard. Her hourly charge-out rate is $500. Average estimated hours to complete a commercial file is 5 hours by Lepard and 14 hours by an assistant. Average estimated hours to complete an individual file is 4 hours by Lepard and 6 hours by an assistant. The remaining hours will be used for other necessary (but unbillable) activities.
Type of fixed expense | Activity | Lepard | Assistants | Total |
Supplies | Supplies used | 20% | 80% | 100% |
Occupancy | Space occupied (m2) | 20 | 30 | 50 |
Communications | Contacts initiated | 20 | 80 | 100 |
Client relations | Clients entertained | 90 | 10 | 100 |
Required:
Using time-driven activity based costing, calculate the charge-out rates for Lepard and the assistants that will produce equal pre-tax profit percentages for each type of financial advising service. Use the following format:
Commercal | Individual | Subtotal | Unalloc. | Total | |
Professional fees (a) | |||||
Lepard | |||||
Assistant | |||||
Fixed expenses | |||||
Lepard | |||||
Assistant | |||||
Income before taxes (b) | |||||
Income tax expense | |||||
Net income | |||||
Pre tax profit % (b/a) |
Horngrens Financial and Managerial Accounting
ISBN: 978-0133866292
5th edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura