Reference no: EM131359444
Refer to the CPA firm in Problem. In planning for next year, Cohen estimates that billable hours will increase by 10% in each of the 6 months. He therefore proceeds to hire a fifth CPA. The same regular time, overtime, and outside consultant (i.e., Forrester) costs still apply.
a) Develop the new aggregate plan and compute its costs.
b) Comment on the staffing level with five accountants. Was it a good decision to hire the additional accountant?
Problem - Forrester and Cohen is a small accounting firm, managed by Joseph Cohen since the retirement in December of his partner Brad Forrester. Cohen and his 3 CPAs can together bill 640 hours per month. When Cohen or another accountant bills more than 160 hours per month, he or she gets an additional "overtime" pay of $62.50 for each of the extra hours: this is above and beyond the $5,000 salary each draws during the month. (Cohen draws the same base pay as his employees.) Cohen strongly discourages any CPA from working (billing) more than 240 hours in any given month. The demand for billable hours for the firm over the next 6 months is estimated below:
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Month
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Estimate of Billable hours
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Jan.
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600
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Feb.
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500
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Mar.
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1,000
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Apr.
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1,200
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May
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650
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June
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590
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Cohen has an agreement with Forrester, his former partner, to help out during the busy tax season, if needed, for an hourly fee of $125. Cohen will not even consider laying off one of his colleagues in the case of a slow economy. He could, however, hire another CPA at the same salary, as business dictates.
a) Develop an aggregate plan for the 6-month period.
b) Compute the cost of Cohen's plan of using overtime and Forrester.
c) Should the firm remain as is, with a total of 4 CPAs?
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