Why contribution income statements are better

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Reference no: EM131882932

Question: 1. Jean Doe is an attorney who has decided to leave her current employment and set up her own law practice. Her estimated monthly cost estimates are: Salary of legal secretary, $3,000; Office rent and utilities, $2,200; Other costs, $1,800. Jean would like to earn $3,500 per month. She will be able to bill 150 hours of her time each month.

A. Assuming that Jean's estimates are correct what fee per hour should she charge her clients?

B. Assume that Jean elects to charge customers $50 per hour. Ignoring Jean's earnings, what is her breakeven point?

2. Sam Student lives in an apartment off campus. On January 1st of the current year, Sam's rent is $225 per month. On March 1st his rent increases to $230 per month. Is the rent a fixed or variable cost? Explain, discuss, and/or illustrate.

3. Horwitz Manufacturing manufactures toasters. At the beginning of the current year, the only depreciable assets Horwitz owned was a machine, which was being depreciated at $12,000 per year. In July of the current year, Horwitz sold the machine, purchasing a new machine on which the annual depreciation is $14,000. For analyses prepared at the end of the current year, is the depreciation a fixed, variable, step, or mixed cost? Explain, discuss, and/or illustrate.

4. Discuss/explain/illustrate why contribution income statements are better suited to pricing decisions than traditional income statements.

Reference no: EM131882932

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