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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
Salaries:
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
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.)

Components
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.

#### 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).

\$2.19

## Accounting for Decision Making: CVP Graph

E5-4 Ewing Company estimates that variable costs will be 50% of sales, and fixed costs will total \$800,000. The selling price of the product is \$4.

Instructions
a. Prepare a CVP graph, assuming maximum sales of \$3,200,000. (Note: Use
\$400,000 increments for sales and costs and 100,000 increments for units.)
b. Compute the break-even point in (1) units and (2) dollars.
c. Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual
sales are \$2 million.
Hint:
Prepare a CVP graph and compute break‐even point and margin of safety.
( Study Objective 6 Study Objective 7).

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