Why year two operating profits did not increase despite

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Year-to-year analysis in a service organization. Baker and Klatt (BK) is a law firm that gets a large portion of its revenue from corporate clients. In Year 2, BK's billable hours for corporate clients were up 20 percent from Year 1 levels, but, as the following data show, profits from corporate clients were the same in Year 2 as in Year 1.

	Year 2	Year 1
Billable Hoursa	30,000 Hours	25,000 Hours
Revenue	$3,400,000	$3,000,000
Production Costs:
Professional Salaries (all variable)	1,850,000	1,500,000
Other Variable Costs (e.g., supplies, certain computer services)	470,000	400,000
General Administrative (all fixed)	680,000	700,000
Operating Profits	$ 400,000	$ 400,000

Prepare an analysis like Exhibit 10.8 that shows why Year 2 operating profits did not increase despite the increase in revenues.

Text Book: Fundamentals of Cost Accounting 2nd Edition.

Reference no: EM13903133

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