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.