Sly & Partners is a city law firm with 12 partners and 30 associates. Charge-out rates are based on the following calculations:

Due to a shortage of work, only 14,000 partner hours and 52,000 associate hours have been billed. To offset this reduction in revenues, the firm was able to reduce expected employment costs by \($100,000\) (\($2,350,000\) less \($2,250,000)\) since three associates left the firm and their positions were left vacant.
Provide some explanations for the profit shortfall.

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Total employment costs Target chargeable hours Partners Associates $1,000,000 $1,350,000 16,000 60,000 $62.50 $22.50 Hourly labour cost (rounded) Total cost per hour (Add 100% to cover fixed costs as these are 100% of total employment costs) $124 $44 Charge-out rate (Add 50% profit margin on total cost base of firm) $186 $66 At year-end, the partners consider the profit report which shows the following: Revenue Employment costs Other fixed costs Net profit Budget $6,936,000 Actual $6,036,000 2,350,000 2,250,000 2,350,000 2,300,000 $2,236,000 $1,486,000