Question

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, 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:

Answer 1

1. AND 2..

PARTICULARS	CATEGORY	AMOUNT
SALARIES:
SENIOR ACCOUNTANT	FIXED	$ 2,500.00
OFFICE ACCOUNTANT	FIXED	$ 1,200.00
INTERNET AND SOFTWARE SUBSCRIPTIONS	MIX
FIXED PORTION		$     100.00
VARIABLE PORTION PER HOUR		$          5.00
CONSULTANCY BY SENIOR PARTNER	VARIABLE	$        10.00
DEPRECIATION (EQUIPMENT)	FIXED	$ 2,400.00
SUPPLIES	MIX
FIXED PORTION		$     125.00
VARIABLE PORTION PER HOUR		$          6.50
ADMINISTRATION	FIXED	$     500.00
RENT	FIXED	$ 2,000.00
UTILITIES	MIX
FIXED PORTION		$     200.00
VARIABLE PORTION PER HOUR		$          1.10

INTERNET AND SOFTWARE SUBSCRIPTIONS
120 HOURS	$     700
150 HOURS	$     850
30 HOURS	$     150
PER HOUR RATE	$          5
FIXED	$     100
700 - (120*5)
SUPPLIES
120 HOURS	$     905
150 HOURS	$ 1,100
30 HOURS	$     195
PER HOUR RATE	$    6.50
FIXED	$     125
905 - (120 *6.5)
UTILITIES
120 HOURS	$     332
150 HOURS	$     365
30 HOURS	$        33
PER HOUR RATE	$    1.10
FIXED	$     200
332 - (120 * 1.10)

3.

			140 HOURS
PARTICULARS	CATEGORY	AMOUNT	VARIABLE	FIXED	TOTAL COST
SALARIES:
SENIOR ACCOUNTANT	FIXED	$ 2,500.00		$             2,500.00	$    2,500.00
OFFICE ACCOUNTANT	FIXED	$ 1,200.00		$             1,200.00	$    1,200.00
INTERNET AND SOFTWARE SUBSCRIPTIONS	MIX
FIXED PORTION		$     100.00		$                100.00	$        100.00
VARIABLE PORTION PER HOUR		$          5.00	$     700.00		$        700.00
CONSULTANCY BY SENIOR PARTNER	VARIABLE	$        10.00	$ 1,400.00		$    1,400.00
DEPRECIATION (EQUIPMENT)	FIXED	$ 2,400.00		$             2,400.00	$    2,400.00
SUPPLIES	MIX
FIXED PORTION		$     125.00		$                125.00	$        125.00
VARIABLE PORTION PER HOUR		$          6.50	$     910.00		$        910.00
ADMINISTRATION	FIXED	$     500.00		$                500.00	$        500.00
RENT	FIXED	$ 2,000.00		$             2,000.00	$    2,000.00
UTILITIES	MIX
FIXED PORTION		$     200.00		$                200.00	$        200.00
VARIABLE PORTION PER HOUR		$          1.10	$     154.00		$        154.00
			$ 3,164.00	$             9,025.00	$ 12,189.00
				TOTAL HOURS	140
				PER HOUR RATE	$          87.06

4.

			170 HOURS
PARTICULARS	CATEGORY	AMOUNT	VARIABLE	FIXED	TOTAL COST
SALARIES:
SENIOR ACCOUNTANT	FIXED	$ 2,500.00		$             2,500.00	$      2,500.00
OFFICE ACCOUNTANT	FIXED	$ 1,200.00		$             1,200.00	$      1,200.00
INTERNET AND SOFTWARE SUBSCRIPTIONS	MIX
FIXED PORTION		$     100.00		$                100.00	$          100.00
VARIABLE PORTION PER HOUR		$          5.00	$          850.00		$          850.00
CONSULTANCY BY SENIOR PARTNER	VARIABLE	$        10.00	$      1,700.00		$      1,700.00
DEPRECIATION (EQUIPMENT)	FIXED	$ 2,400.00		$             2,400.00	$      2,400.00
SUPPLIES	MIX
FIXED PORTION		$     125.00		$                125.00	$          125.00
VARIABLE PORTION PER HOUR		$          6.50	$      1,105.00		$      1,105.00
ADMINISTRATION	FIXED	$     500.00		$                500.00	$          500.00
RENT	FIXED	$ 2,000.00		$             2,000.00	$      2,000.00
UTILITIES	MIX
FIXED PORTION		$     200.00		$                200.00	$          200.00
VARIABLE PORTION PER HOUR		$          1.10	$          187.00		$          187.00
			$      3,842.00	$             9,025.00	$    12,867.00
				TOTAL HOURS	170
				PER HOUR RATE	$            75.69

THE TOTAL PER UNIT COST DECREASES AS THE FIXED COST REMAINS SAME AND TENDS TO SPREAD OVER MORE NUMBER OF UNITS.