Emily Smith and two colleagues are considering opening a law office in a large metropolitan area that would make inexpensive legalservices available to those who could not otherwise afford services. The intent is to provide easy access for their clients by having theoffice open 360 days per year, 16 hours each day from 7:00 a.m. to 11:00 p.m. The office would be staffed by a lawyer, paralegal, legalsecretary, and clerk-receptionist for each of the two eight-hour shifts.In order to determine the feasibility of the project, Smith hired a marketing consultant to assist with market projections. The results ofthis study show that if the firm spends $995,000 on advertising the first year, the number of new clients expected each day will be 53.Smith believes this number is reasonable and is prepared to spend the $995,000 on advertising. Other pertinent information aboutthe operation of the office follows:• The only charge to each new client would be $63 for the initial consultation. All cases that warrant further legal work will beaccepted on a contingency basis with the firm earning 30 percent of any favorable settlements or judgments. Smith estimates that20 percent of new client consultations will result in favorable settlements or judgments averaging $4,300 each. It is not expectedthat there will be repeat clients during the first year of operations.• The hourly wages of the staff are projected to be $53 for the lawyer, $43 for the paralegal, $33 for the legal secretary, and $23 forthe clerk-receptionist. Fringe benefit expense will be 40 percent of the wages paid. A total of 460 hours of overtime is expected forthe year, this will be divided equally between the legal secretary and the clerk-receptionist positions. Overtime will be paid at oneand one-half times the regular wage, and the fringe benefit expense will apply to the full wage.• Smith has located 6,000 square feet of suitable office space that rents for $59 per square foot annually. Associated expenses willbe $55,500 for property insurance and $76,400 for utilities.• It will be necessary for the group to purchase malpractice insurance, which is expected to cost $363,000 annually.The initial investment in the office equipment will be $123,000. This equipment has an estimated useful life of four years.• The cost of office supplies has been estimated to be $11 per expected new client consultation.Required:1. Determine how many new clients must visit the law office being considered by Smith and his colleagues in order for the venture tobreak even during its first year of operations.Note: Round your final answer up to the next whole number.2. Compute the law firm's safety margin.Note: Round your final answer to the nearest whole number.1. Number of new clients to break even2. Safety margin

Contribution means the difference between the selling price and variable cost.Fixed cost when…

Answered: Emily Smith and two colleagues are…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 31P

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Don Masters and two of his colleagues are considering opening a law office in a largemetropolitan area that would make inexpensive legal services available to those whocould not otherwise afford these services. The intent is to provide easy access for theirclients by having the office open 360 days per year, 16 hours each day from 7:00 a.m. to11:00 p.m. The office would be staffed by a lawyer, paralegal, legal secretary, andclerk-receptionist for each of the two 8-hour shifts.In order to determine the feasibility of the project, Don hired a marketing consultantto assist with market projections. The results of this study show that if the firm spends$500,000 on advertising the first year, the number of new clients expected each daywould have the following probability distribution:Don and his associates believe these numbers are reasonable and are prepared tospend the $500,000 on advertising. Other pertinent information about the operation ofthe office is as follows.The only charge to…
Don Masters and two of his colleagues are considering opening a law office in a large metropolitan area that would make inexpensive legal services available to those who could not otherwise afford these services. The intent is to provide easy access for their clients by having the office open360 days per year, 16 hours each day from 7:00 a.m. to 11:00 p.m. The office would be staffed by a lawyer, paralegal, legal secretary, and clerk-receptionist for each of the two 8-hour shifts.In order to determine the feasibility of the project, Don hired a marketing consultant to assist with market projections. The results of this study show that if the firm spends $500,000 onadvertising the first year, the number of new clients expected each day would have the following probability distribution: Number of NewClients per Day Probability 20 0.10 30 0.30 55 0.40…
Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Lon has gathered the following investment information. 1. 2. 3. 4. 5. Five used vans would cost a total of $75,000 to purchase and would have a 3-year useful life with negligible salvage value. Lon plans to use straight-line depreciation. Ten drivers would have to be employed at a total payroll expense of $48,000. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,000, Maintenance $3,300, Repairs $4,000, Insurance $4,200, and…
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Ms. Faye Santos is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Ms. Faye Santos is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan areas and visit their homes regularly on the weekends. Faye, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. She believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Faye has gathered the following investment information. Five used vans would cost a total of $75,000 to purchase and would have a three-year useful life with negligible salvage value. Faye plans to use straight-line depreciation. Ten drivers would have to be employed at a total payroll expense of $48,000. 3. Other annual out-of-pocket expenses…
Marvin Turner was discussing summer employment with Tina Song, president of Motown Construction Service:Tina: I’m glad you’re thinking about joining us for the summer. We certainly can use the help. Marvin: Sounds good. I enjoy outdoor work, and I could use the money to help with next year’s school expenses.Tina: I’ve got a plan that can help you out on that. As you know, I’ll pay you $14 per hour, but in addition, I’d like to pay you with cash. Since you’re only working for the summer, it really doesn’t make sense for me to go to the trouble of formally putting you on our payroll system. In fact, I do some jobs for my clients on a strictly cash basis, so it would be easy just to pay you that way.Marvin: Well, that’s a bit unusual, but I guess money is money.Tina: Yeah, not only that, it’s tax-free!Marvin: What do you mean?Tina: Didn’t you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesn’t know about the income—hence, it’s the…
Suppose that FedEx Kinko’s has decided to install personal computers and printers in its Pittsburgh store that will be rented to customers on an hourly basis. FedEx Kinko’s management has called in consultants from a number of computer suppliers to assist it in designing a system. After considering a number of alternatives, FedEx Kinko’s decided that an Apple computer system consisting of eight iMac computers and two printers best meets its current and projected future needs. FedEx Kinko’s evaluated the desirability of the acquisition of the Apple computer system using its normal capital budgeting procedures. It found that the computer system has a large positive expected net present value. Jim Horn, a new management trainee in the financial planning office, has recently been reading about the boom in the leasing industry. He feels that if leasing is growing as rapidly as it seems, there must be some significant advantages to the leasing alternative compared to ownership. If purchased,…
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