Question
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
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 |
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