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    Cost Behavior, High-low Method, Pricing Decision

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    Since the clinic is brand new, it has no experience to go on. Carlos decided to operate the clinic for two months before determining how much to charge per hour on an ongoing basis. As a temporary measure, the clinic adopted an hourly charge of $25, half the amount charged by Fonseca, Ruiz, and Dunn for professional services.
    The accounting services clinic opened on January 1. During January, the clinic had 120 hours of professional service. During February, the activity was 150 hours. Costs for these two levels of activity usage are as follows

    120 Professional Hours 150 Professional Hours
    Senior accountant $2500 $2500
    Office assistant $1200 $1200
    Internet and software subs. $700 $850
    Consulting by Senior Partner $1200 $1500
    Depreciation (equipment) $2400 $2400
    Supplies $905 $1100
    Administration $500 $500
    Rent (office) $2000 $2000
    Utilities $332 $365

    2. Use the high-low method to separate the mixed costs into their fixed and variable components. (Note: Round variable rates to two decimal places and fixed amounts to the nearest dollar.)

    Mixed Cost Variable Rate Fixed Amount
    Internet and software subscriptions $ $
    Supplies $ $
    Utilities $ $

    3. Luz Mondragon, the chief paraprofessional of the clinic, has estimated that the clinic will average 140 professional hours per month. If the clinic is to be operated as a nonprofit organization, how much will it need to charge per professional hour? Round answer to two decimal places.
    $ per professional hour
    How much of this charge is variable? Round answer to two decimal places.
    $ per professional hour
    How much is fixed? Round answer to two decimal places.
    $ per professional hour

    4. Conceptual Connection: Suppose the accounting center averages 170 professional hours per month. How much would need to be charged per hour for the center to cover its costs? Round answer to two decimal places.
    $ per professional hour.

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    Solution Summary

    Your tutorial is attached showing how to find the variable and fixed portion using high low method. Then breakeven analysis is used to solve for hourly price to achieve nonprofit (zero profits).