Joleen Harmon & The Donal Company

1. Joleen Harmon, CPA, has two clients. Client A requires 20 hours of partner time and 100 hours of staff time. Client B will use 12 hours of partner time and 80 hours of staff time. Partners are paid $85 an hour and bill support time at 60% of their hourly rate. Staff are paid $25 an hour and bill support time at $20 per billable hour.

On a separate sheet of paper, calculate the total charge to each of these clients if profit is added at 20% over cost. Label each answer carefully and show all of your work. (This question is worth 10 points.)

2. The Tijama Manufacturing Company has determined the cost of manufacturing a unit of product to be as follows, based on annual production of 50,000 units per year:

Direct materials $20.00

Direct labor 15.00

Variable factory overhead 10.00

Fixed factory overhead 12.00

Operating statistics for the month of August and September are as follows:

August September

Units produced 4,200 3,500

Units sold 3,500 4,200

Selling and administrative expenses $25,000 $35,000

The selling price is $75 a unit. There were no inventories on August 1, and there is no work in process at September 30.

Prepare comparative income statements for each month under both absorption costing and direct costing. Use the forms at the end of this examination to complete this problem.

(This question is worth 25 points.)

3. The Donal Company has sales of $800,000, variable costs of $300,000, and fixed costs of $250,000.On a separate sheet of paper, compute the following. Label each answer carefully and show all of your work.

a. Contribution margin ratio

b. Break-even sales volume

c. Margin of safety ratio

d. Net income as a percentage of sales

(This question is worth 20 points, 5 points for each part.)