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THE CPA FIRM You are partner for a CPA firm who just completed an audit of a client's financial statements. On the right of the below was the plan for the audit as follows: When planning for the audit, you budgeted 220 hours with a labor mix of 5% partner time, 20% senior accountant and 75% junior accountant. The cost per hour for the three classes of employees ranges from $30 per hour for juniors, $120 per hour for seniors and $300 per hour for partners. They projected the cost of the audit to be $13,530. Using your normal markup of 30%, you had bid $17,589. Initially the time records indicated that the firm came in under budget at 200 hours, completing it in 20 hours less than planned! Naturally you were excited, until you saw the actual numbers, which are shown on the left. These indicate that the actual cost of completing the job was $22,400, which was some $8,870 more than our budget! Not only that, but the actual cost of the job was so large that it actually exceeded the quoted price for the job by almost $5,000. Wow! Turns out that three things were different. 1) the average rates were different due to some unscheduled overtime from seniors. 2) The mix of hours was different than planned. 3) The total number of hours was different. Using your variance analysis model, account for the unfavorable budget variance ($8,870) by figuring out what part of this difference was caused by the difference in rates, what part was caused by a difference in the labor mix, and how much was attributable to the difference in the quantity of hours. You can do this by hand. Hints: 1) Put the actual on the left column and the budgeted on the right column. 2) There will be two more columns in the middle making a total of four. 3) The rate will be analyzed by comparing the left column to the 2nd column. The mix will be analyzed by comparing the 2nd column to the 3rd column. Finally, the quantity of hours will be analyzed by comparing the 3rd column to the right column. Account for the $8,870. FIGURE IT OUT Act. Hrs. Rate Cost Bud hrs Rate Cost Partner 20 $300 $6,000 11 300 $3,300 Senior 110 130 $14,300 44 120 $5,280 Junior 70 30 $2,100 165 30 $4,950 200 hrs $22,400 -$8,870 220 hrs $13,530 ACTUAL PERFORMANCE BUDGETEDPERFORMANCE