Reference no: EM132838114

Howard Cooper, the president of Stuart 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 31.00
Overhead cost 6.70
Selling, general, and administrative cost 4.20
Expected fixed costs
Facility maintenance $524,000
Selling, general, and administrative 150,000

Problem 1: the pro forma income statement that would appear in the master budget if the firm expects to provide 31,000 hours of services in 2019.

Problem 2: 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 Stuart charges customers $78 per hour, the firm can achieve 40,000 hours of services. Prepare a flexible budget using the consultant's assumption.

Problem 3: The same consultant also suggests that if the firm raises its rate to $88 per hour, the number of service hours will decline to 26,000. Prepare a flexible budget using the new assumption.