Requirement 4

Draper Consulting provides consulting services at an average price of $175 per hour and incurs variable costs of $100 per hour. Assume average fixed costs are $5,250 a month in 2014. Based on the given information, complete the following calculations.

a. What is the number of hours that must be billed each month to break even?

b. If Draper decides to make a profit of $3,000 a month, how many hours must be billed?

c. Draper thinks it can reduce its fixed costs to $3,990 per month, but will have to raise variable costs to $105 per hour. What is the number of hours that must be billed each month to break even under these circumstances?

Draper Consulting Inc.
Balance Sheet
December 31, 2013 and 2012
	2013	2012
Assets:
Current Assets:
Cash	514,936	16,350
Accounts Receivable	37,500	1,750
Supplies	2,200	200
Total Current Assets	554,636	18,300
Plant Assets:
Equipment	16,000	1,800
Less: Accumulated Depreciation - Equipment	(440)	(30)
Furniture	5,700	4,200
Less: Accumulated Depreciation - Furniture	(661)	(70)
Building	125,000	0
Less: Accumulated Depreciation - Building	(1,652)	0
Total Assets	698,583	24,200
Liabilities:
Current Liabilities:
Accounts Payable	10,000	4,650
Salary Payable	4,100	685
Unearned Service Revenue	0	700
Total Current Liabilities	14,100	6,035
Long-Term Liabilities:
Interest Payable	10,667	0
Notes Payable	40,000	0
Bonds Payable	400,000	0
Less: Discount on Bonds Payable	(36,184)	0
Total Liabilities	428,583	6,035
Stockholders' Equity:
Common Stock	130,000	18,000
Retained Earnings	140,000	165
Total Stockholders' Equity	270,000	18,165
Total Liabilities and Stockholders' Equity	698,583	24,200

Draper Consulting Inc.
Income Statement
Year Ended December 31, 2012
Revenue:
Service Revenue		3,850
Expenses:
Rent Expense	550
Utilities Expense	250
Salary Expense	685
Depreciation Expense - Equipment	30
Depreciation Expense - Furniture	70
Supplies Expense	700
Total Expenses		2,285
Net Income		1,565

Draper Consulting, Inc Income Statement Month Ended January 31, 2014 Sales revenue Cost of goods sold: Cost of goods sold Gross profit Cost to manufacture one unit