Question - K&B is a small management consulting firm. Last month, the firm billed fewer hours than expected, and, as expected, profits were lower than anticipated.
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Reported Income Statement
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Master Budget
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Billable hoursa
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7,220
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9,100
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Revenue
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$672,000
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$812,000
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Professional salaries (all variable)
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341,000
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401,000
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Other variable costs (e.g., supplies, computer services)
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98,200
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120,200
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Fixed costs
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205,400
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200,400
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Profit
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$27,400
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$90,400
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aThese are hours billed to clients. They are fewer than the number of hours worked because there is nonbillable time (e.g., slack periods, time in training sessions) and because some time worked for clients is not charged to them.
Required: Prepare a flexible budget for K&B. Use billable hours as the measure of output (that is, units produced).