Print Previewjudgments. Don estimates that 20 percent of new client consultations willresult in favorable settlements or judgments averaging $2,000 each. Repeatclients are not expected during the first year of operations.The hourly wages of the staff are projected to be $25 for the lawyer, $20 forthe paralegal, $15 for the legal secretary, and $10 for the clerk-receptionist.Fringe benefit expenses will be 40 percent of the wages paid. A total of 400hours of overtime is expected for the year; this will be divided equally betweenthe legal secretary and the clerk-receptionist positions. Overtime will be paidat one and one-half times the regular wage, and the fringe benefit expensewill apply to the full wages.Don has located 6,000 square feet of suitable office space, which rents for$28 per square foot annually. Associated expenses will be $22,000 forproperty insurance and $32,000 for utilities.It will be necessary for the group to purchase malpractice insurance, which isexpected to cost $180,000 annually. The initial investment in office equipmentwill be $60,000; this equipment has an estimated useful life of four years. Thecost of office supplies has been estimated to be $4 per expected new clientconsultation.Required:1. Determine how many new clients must visit the law office being considered byDon Masters and his colleagues in order for the venture to break even duringits first year of operations.2. Using the information provided by the marketing consultant, determine if it isfeasible for the law office to achieve break-even operations. (CMA adapted) Problem 16.31Break-Even in UnitsObjective 1- Determine the number of units and amount of sales revenueneeded to break even and to earn a target profit.Don Masters and two of his colleagues are consideringCMAopening a law office in a large metropolitan area thatwould make inexpensive legal services available tothose who could not otherwise afford these services. The intent is to provideeasy access for their clients by having the office open 360 days per year, 16hours each day from 7:00 a.m. to 11:00 p.m. The office would be staffed by alawyer, 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 marketingconsultant to assist with market projections. The results of this study showthat if the firm spends $500,000 on advertising the first year, the number ofnew clients expected each day would have the following probabilitydistribution:Number of NewClients per Day Probability200.10300.30550.40850.20Don and his associates believe these numbers are reasonable and areprepared to spend the $500,000 on advertising. Other pertinent informationabout the operation of the office is as follows.The only charge to each new client would be $30 for the initial consultation. Allcases that warranted further legal work would be accepted on a contingencybasis with the firm earning 30 percent of any favorable settlements orcomiSicinhluilevnindex htmldeISAN-97813059707248id=187AG624RAnhld=5246498snanshotid=R246494dockAnol

Breakeven point is the level of equilibrium where the cost of producing goods and services are equal…

Problem 16.31 Break-Even in Units Objective 1- Determine the number of units and amount of sales revenue needed to break even and to earn a target profit. 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 СМА easy access for their clients by having the office 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, legal secretary, and clerk-receptionist for each of the two 8- hour shifts. In order to determine the asibility 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 on advertising the first year, the number of new clients expected each day would have the following probability distribution: Number of New Clents per Day Probability 20 0.10 30 0.30 55 0.40 85 0.20 Don and his associates believe these numbers are reasonable and are prepared to spend the $500,000 on advertising. Other pertinent information about the operation of the office is as follows. The only charge to each new client would be $30 for the initial consultation. All cases that warranted further legal work would be accepted on a contingency basis with the firm earning 30 percent of any favorable settlements or

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.6C