Fonseca, Ruiz, and Dunn is a large, local accounting firm located in a southwestern city. Carlos Ruiz, one of the firm's founders, appreciates the success his firm has enjoyed and wants to give something back to his community. He believes that an inexpensive accounting services clinic could provide basic accounting services for small businesses located in the barrio. He wants to price the services at cost.

Since the clinic is brand new, it has no experience to go on. Carlos decided to operate the clinic for 2 months before determining how much to charge per hour on an ongoing basis. As a temporary measure, the clinic adopted an hourly charge of $25, which is half the amount charged by Fonseca, Ruiz, and Dunn for professional services.

The accounting services clinic opened on January 1. During January, the clinic had 120 hours of professional service. During February, the activity was 150 hours. Costs for these two levels of activity usage are as follows:

Line Item Description	120 Professional Hours	150 Professional Hours
Salaries: Senior accountant	$2,500	$2,500
Office assistant	1,200	1,200
Internet and software subscriptions	700	850
Consulting by senior partner	1,200	1,500
Depreciation (equipment)	2,400	2,400
Supplies	905	1,100
Administration	500	500
Rent (offices)	2,000	2,000
Utilities	332	365

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Required:

1. Using the high–low method, determine the variable cost per professional hour and the total fixed costs of the clinic.

2. Develop the cost formula for total costs at the clinic.

3. Using your cost formula, calculate the predicted total cost for a month in which the clinic expects to provide 140 professional hours of service.

4. Based on your calculation in (3), determine the cost per professional hour at 140 hours.

5. Compare this cost per professional hour with the current temporary charge of $25 per hour. Should the clinic adjust its pricing? Explain briefly.