Exercise 21: Thome And Crede Cpas Are Preparing Their Servic
Exercise 21 3thome And Crede Cpas Are Preparing Their Service Revenu
Exercise 21 3thome And Crede Cpas Are Preparing Their Service Revenu
Exercise 21-3 Thome and Crede, CPAs, are preparing their service revenue (sales) budget for the coming year (2017). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below.
Department | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total
| Auditing | 2,000 | 3,200 | 3,850 | 6,620 | |
|---|---|---|---|---|---|
| Tax | 3,000 | 3,480 | 4,680 | 5,700 | |
| Consulting | 1,200 | 2,600 | 3,700 | 4,770 |
Average hourly billing rates are: auditing $82, tax $93, and consulting $102.
Calculate for each department and quarter, the billable hours, billable rate, and total revenue. Then, sum these for the total annual revenue per department.
Paper For Above instruction
The service revenue (sales) budget for Thome and Crede, CPAs, for 2017 provides critical insight into the firm's expected financial performance across its three primary service departments: auditing, tax, and consulting. The budgeting process involves calculating the anticipated billable hours, applying the standard billing rates, and summing the resulting revenues to create a comprehensive financial outlook.
Quarterly and Departmental Billable Hours
Data indicates that the auditing department is projected to have billable hours of 2,000 in Q1, 3,200 in Q2, 3,850 in Q3, and 6,620 in Q4, summing up to an annual total of 15,670 hours. The tax department's quarterly figures are 3,000; 3,480; 4,680; and 5,700, totaling 16,860 hours annually. Consulting's quarterly billable hours are 1,200; 2,600; 3,700; and 4,770, amounting to 12,970 hours for the year.
Calculation of Revenue
Using the prescribed hourly rates—$82 for auditing, $93 for tax, and $102 for consulting—the total revenue per quarter is computed by multiplying billable hours by their respective rates. For instance, in Q1, auditing generates revenue of 2,000 hours x $82 = $164,000, tax yields 3,000 x $93 = $279,000, and consulting results in 1,200 x $102 = $122,400, summing to a total of $565,400 for Q1. When repeated for other quarters and summed across quarters, the total annual revenues are derived for each department.
Summing revenue across all departments provides the total expected service revenue for 2017, which forms the basis for planning operational capacity and resource allocation.
Implications and Strategic Considerations
The detailed revenue projections enable management to evaluate departmental performance, identify capacity constraints, and make strategic decisions related to staffing, marketing, and service offerings. Accurate budgeting also facilitates cash flow management and profitability analysis.
References
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