Problem 3-62

Cost Behavior, High-Low Method, Pricing Decision

Objective 1, 2, 3Fonseca, 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, 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:

	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

Required:

1. Luz Mondragon, the chief paraprofessional of the clinic, has estimated that the clinic will average 140 professional hours per month. If the clinic is to be operated as a nonprofit organization, how much will it need to charge per professional hour? How much of this charge is variable? How much is fixed? (Note: Round answers to two decimal places.) Complete the cost data showing total fixed costs and then variable costs (you will have 4 because 3 are mixed and 1 is all variable) Apply to 140 professional hours - show work.