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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

image text in transcribed

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

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