A&R Quality Advisors is a small consulting firm offering quality audits and advising services to small and mid-sized manufacturing firms. Quality audits entail reviewing, checking, and documenting quality practices within a firm. Quality advising entails making recommendations for new or revised quality practices. Other firms in the area offer one or both of these services, although the competition for quality audit jobs is stronger than for quality advising. In addition to senior executives, A&R employees are either staff or managers. Staff employees are usually younger with less experience. Managers, who oversee the staff on jobs, are more experienced. The average hourly wage is $60 for staff and $150 for managers. (Both staff and managers are paid an annual salary, these hourly costs are based on 2,000 average annual hours worked.) Staff are expected to spend at least 90 percent of their time on billable work. Because of administrative work associated with supervising the staff and the expectation that managers will spend a portion of their time seeking new business, managers are expected to spend about 50 percent of their time on billable work. A&R employs ten staff and two managers. In addition to staff and manager costs, A&R has overhead and administrative costs of $4,500,000, of which about $1,500,000 is variable with respect to billable hours. Overhead and administrative costs include the non-billable cost of the staff and managers. Selected information on billable hours expected for the next year follow. Billable Audit Hours Billable Advising Hours Total Billable Hours Staff Client 01 150 Manager Staff Manager Staff Manager 12 200 10 350 22 Client 02 70 10 0 0 70 10 Client 03 220 30 80 15 300 45 Chont 49 40 2 0 0 40 2 Client 50 300 Total 20 200 15 500 35 8,500 1,200 9,500 800 18,000 2000 Although not all clients use A&R for both services, about 70 percent do