Three graduates who recently graduated from the College of Law are considering opening a law office in that would make inexpensive legal services available to those who could not afford these services elsewhere. The intent is to provide easy access for their clients by having the office open 300 days a year, 8 hours each day from 8 A.M. to 4 P.M. The office will be staffed by a lawyer, assistant, secretary, and receptionist. To assist with market projections and to determine the feasibility of this project, the three graduates hired a management accountant who graduated from the College of Business and Economics of 8 years ago. The results of this market study show that if the firm spends USD 500,000 on advertising in the first year, the number of new clients expected each day may have the following probability distribution: Number of new clients per day Probability Expected Outcome 20 0.1 2 30 0.3 9 55 0.4 22 85 0.2 17 Total Clients per day 50 Total Clients per year (50 clients * 300 days) 15,000 The three graduates believe these numbers are reasonable and are prepared to spend USD 500,000 on advertising. Other related information about the operation of the office is as follows: The only charge to each new client would be USD 100 for the initial consultation. In addition to the initial consultation fee, for all cases that are warranted further legal work, the law office shall be earning 30% of any favorable settlements. It is expected that 20% of new client consultations will result in favorable settlements averaging USD 5,000 each. Therefore, each favorable settlement shall result in USD 300 (USD 5000 * 30% * 20%). The hourly wages are projected to be as follows: Staff Wage/ hour Wage/Day (8 hours) Wage/Year (300 days) Lawyer 250 2,000 600,000 Assistant 200 1,600 480,000 Secretary 150 1,200 360,000 Receptionist 100 800 240,000 Total Wages/Year 1,680,000 Thelawyershavelocated 800 squarefeetofsuitableofficespace,which is rented for USD 1,000 per square foot annually. Annual property insurance will be USD 22,000 and USD 32,000 for utilities, also annually. The initial investment in office equipment will be USD 300,000;with an estimated useful life of 5 years. The cost of office supplies has been estimated to be USD 50 per client. Q: Prepare a graph for the break-even point, showing the lines of fixed and variable costs, total sales, and the safety margin area
Three graduates who recently graduated from the College of Law are considering opening a law office in that would make inexpensive legal services available to those who could not afford these services elsewhere. The intent is to provide easy access for their clients by having the office open 300 days a year, 8 hours each day from 8 A.M. to 4 P.M. The office will be staffed by a lawyer, assistant, secretary, and receptionist.
To assist with market projections and to determine the feasibility of this project, the three graduates hired a management accountant who graduated from the College of Business and Economics of 8 years ago. The results of this market study show that if the firm spends USD 500,000 on advertising in the first year, the number of new clients expected each day may have the following probability distribution:
Number of new clients per day Probability Expected Outcome
20 0.1 2
30 0.3 9
55 0.4 22
85 0.2 17
Total Clients per day 50
Total Clients per year (50 clients * 300 days) 15,000
The three graduates believe these numbers are reasonable and are prepared to spend USD 500,000 on advertising.
Other related information about the operation of the office is as follows:
- The only charge to each new client would be USD 100 for the initial consultation. In addition to the initial consultation fee, for all cases that are warranted further legal work, the law office shall be earning 30% of any favorable settlements. It is expected that 20% of new client consultations will result in favorable settlements averaging USD 5,000 each. Therefore, each favorable settlement shall result in USD 300 (USD 5000 * 30% * 20%).
- The hourly wages are projected to be as follows:
Staff Wage/ hour Wage/Day (8 hours) Wage/Year (300 days)
Lawyer 250 2,000 600,000
Assistant 200 1,600 480,000
Secretary 150 1,200 360,000
Receptionist 100 800 240,000
Total Wages/Year 1,680,000
- Thelawyershavelocated 800 squarefeetofsuitableofficespace,which is rented for USD 1,000 per square foot annually. Annual property insurance will be USD 22,000 and USD 32,000 for utilities, also annually.
- The initial investment in office equipment will be USD 300,000;with an estimated useful life of 5 years.
- The cost of office supplies has been estimated to be USD 50 per client.
Q: Prepare a graph for the break-even point, showing the lines of fixed and variable costs, total sales, and the safety margin area
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