Tallon & Associates Is a Consulting Firm Specializing in Business

question 43

Essay

Tallon & Associates is a consulting firm specializing in business location studies. The results for last year, along with the budget, are as follows: $\begin{array}{lcc}& \text {Actual }& \text {Budget}\\ \text { Billable hours } & \underline{25,200} &\underline{ 24,000} \\ \text { Revenue } & \$ 2,772,000 & \$ 2,400,000 \\ \text { Professional salaries (variable) } & 1,310,000 & 1,200,000 \\ \text { Other variable costs } & 488,000 & 400,000 \\ \text { Fixed costs } & 492,000 & 450,000 \\ \text { Office management salaries (fixed) } & \underline{317,000} & \underline{225,000 }\\ \text { Operating profit } & \underline{\$165,000 }& \underline{\$125,000} \\\end{array}$

Required:
(Be sure to indicate whether the variance is favorable or unfavorable.)
a. Prepare a flexible budget using billable hours as the measure of output.
b. Prepare a sales activity variance analysis.
c. Compute the sales price variance.

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Definitions:

Conservatism Constraint

An accounting principle that provides guidance for uncertain conditions, advising to recognize expenses and liabilities sooner rather than later.

Historical Cost Principle

An accounting principle that states that assets should be recorded and reported at their original purchase cost.

Work in Process

Inventory that includes goods that are in the process of being manufactured but are not yet complete.

Finished Goods Inventory

Manufactured goods that are complete and ready for sale.