M&M, is a medium size accounting practice offering numerous services to its clients: Accounting for Managers, Assignment, UOL, Singapore

QUESTION 4

M&M, is a medium size accounting practice offering numerous services to its clients. On average all these services are charged out at $500 per direct labour hour, whilst variable costs are consumed on a direct labour hour basis.

The financial results for the latest year end are detailed below:

Required:

(a) What is the annual break-even point in hours and fees for each service offered by the firm (show all calculations)?

(b) What costs are relevant in determining if the firm should continue to operate the small business services segment?

(c) Should the partner’s suggestion be adopted? Justify and discuss implications. List key qualitative and quantitative factors to justify your decision.

(d) If the business had the ability to move some of its fixed costs to variable would this

change your conclusion in (c) above? Answer must be supported by assumptions and calculations.