Emily Smith and two colleagues are considering opening a law office in a large metropolitan area that would make inexpensive legalservices available to those who could not otherwise afford services. The intent is to provide easy access for their clients by having theoffice 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, legalsecretary, and clerk-receptionist for each of the two eight-hour shifts.In order to determine the feasibility of the project, Smith hired a marketing consultant to assist with market projections. The results ofthis study show that if the firm spends $995,000 on advertising the first year, the number of new clients expected each day will be 53.Smith believes this number is reasonable and is prepared to spend the $995,000 on advertising. Other pertinent information aboutthe operation of the office follows:• The only charge to each new client would be $63 for the initial consultation. All cases that warrant further legal work will beaccepted on a contingency basis with the firm earning 30 percent of any favorable settlements or judgments. Smith estimates that20 percent of new client consultations will result in favorable settlements or judgments averaging $4,300 each. It is not expectedthat there will be repeat clients during the first year of operations.• The hourly wages of the staff are projected to be $53 for the lawyer, $43 for the paralegal, $33 for the legal secretary, and $23 forthe clerk-receptionist. Fringe benefit expense will be 40 percent of the wages paid. A total of 460 hours of overtime is expected forthe year, this will be divided equally between the legal secretary and the clerk-receptionist positions. Overtime will be paid at oneand one-half times the regular wage, and the fringe benefit expense will apply to the full wage.• Smith has located 6,000 square feet of suitable office space that rents for $59 per square foot annually. Associated expenses willbe $55,500 for property insurance and $76,400 for utilities.• It will be necessary for the group to purchase malpractice insurance, which is expected to cost $363,000 annually.The initial investment in the office equipment will be $123,000. This equipment has an estimated useful life of four years.• The cost of office supplies has been estimated to be $11 per expected new client consultation.Required:1. Determine how many new clients must visit the law office being considered by Smith and his colleagues in order for the venture tobreak even during its first year of operations.Note: Round your final answer up to the next whole number.2. Compute the law firm's safety margin.Note: Round your final answer to the nearest whole number.1. Number of new clients to break even2. Safety margin

Contribution means the difference between the selling price and variable cost.Fixed cost when…

Answered: Emily Smith and two colleagues are…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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