Reference no: EM132509371

Graber and Johnson, Attorney's at Law, recently opened a law practice in the Northwest. Their goal is to generate a monthly net income of $10,000. They have initially set their billing rate at $150 per hour. Their billable hours in the first month of operations (January) were 150 and in the second month of operations (February), 175 billable hours.

The costs incurred at these levels for January and February are given below.                                                       

                                        150 billable hours         175 billable hours
Salaries:
Mr. Graber                         $10,000.00                $10,000.00
Ms. Johnson                       10,000.00                 10,000.00
Legal Secretary                       4,000.00               4,000.00
Depreciation (Furniture)                500.00                500.00
Supplies                                     450.00             525.00
Rent                                       1,000.00               1,000.00
Utilities                                      412.00                  449.50
Total cost                               $26,362.00            $26,474.50

Required:

Question 1: Classify each cost as fixed, variable, or mixed using billable hours as the driver.

Question 2: Use the high-low method to separate mixed costs into their fixed and variable components.

Question 3: Compute the net income/loss for January and February.

Question 4: If they expect to average 200 billable hours each month what do they need to set as a billing rate per hour to achieve their goal of generating $10,000 of monthly net income? Show your calculations.