Urban Services, Inc., a management consulting group, is in its fourth year of operation. It consists of three independent groups: (1) legal services, (2) accounting services, and (3) portfolio management. All its revenue comes from physicians and dentists. It has no plans to expand its services outside these markets. Clients are billed at hourly rates for services rendered to them.
One group often performs services for another group. For example, after the accounting services group has decided that a client physician needs to shelter some of his or her income, it requests the portfolio management group to match the needs of the client with the best shelter possible for this client.
Corporate policy allows each group manager to operate his or her group as if it were a separate company. The following is representative of pricing and cost information for each group:

Required:
a. The staff of the portfolio management group is working at capacity with its own outside clients. If the legal services group wants to buy consulting services from the portfolio management group, at what price per hour should the portfolio management group bill the legal services group?
b. Are there any conditions under which the portfolio management group should bill the legal services group at less than this price?
c. The accounting services group has been using about 1,400 hours per quarter of legal services group time at a rate of $115. If the legal services group manager decides to raise the rate 10 percent, should the accounting services group be forced by corporate management to pay the new rate in order to keep the business in the firm?

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Per Consulting Hours Billing Rate Variable Cost Total Fixed Cost Group Legal services Accounting services Portfolio management $115 140 104 $35.00 46.00 57.00 $396,000 462,000 330,000