ACCOUNTING FOR MANAGERS

A CASE ANALYSIS

PRESENTED BY : TEAM CONVOKE

Dharamnath Masters and two of his colleagues opening

FACTS OF THE CASE

a law office
The aim is to provide inexpensive legal services for those

who cannot afford.

The intent is to provide inexpensive legal services and

easy access for their clients by having the office open 360
days, 16 hours each from 7:00 am to 11:00 pm.

The office would be staffed by

lawyer paralegal

legal secretary
Clerk-receptionist. The 16 hours working time is splited into two shifts, each 8

hours.
For determining the feasibility of the project, they hired

a marketing consultant to assist with market projections.

The result of this study shows that if the firm spends Rs.5

lakhs on advertising the first year, the number of new clients expected each day would have the following probability

distribution.

No. of new clients per day Probability

20

30

55

85

0.10 0.30 0.40 0.20

They find this is reasonable, and they are prepared to

spend Rs.5 lakhs on advertising.

RELATED INFORMATION
Charge to each new client would be Rs.30 for the initial

consultation.
Firm earns 30% of any favorable judgment or settlement. It is estimated that 20% of new client consultations will

result in favorable settlement averaging Rs.2000 each.

HOURLY WAGES FOR THE STAFF

Lawyer: Paralegal:

Rs:25 Rs:20

Legal secretary:

Rs:15

Clerk-receptionist: Rs:10

Fringe benefit expenses will be 40% of the wages paid. A total of 400 hours of overtime is expected for the year;

this will be divided equally between the legal secretary and the clerk-receptionist.
Overtime will be paid at one and one - half times the

regular wage, and the fringe benefit expense will apply to the full wages.

Masters has located 6,000 square feet of suitable office

space, which rents for Rs.28 per square foot annually.

Associate expense:

Property insurance:
Utilities:

Rs:22,000.
Rs:32,000.

Malpractice insurance: Rs:1,80,000.

The initial investment in office equipment will be

Rs.60,000; this equipment has an estimated useful of four

years.
The cost of office supplies has been estimated to be Rs.4

per expected new client consultation.

PROBLEM 1
1) Determine how many new clients must visit the law

office being considered by Dharamnath Masters and his colleagues in order for the venture to break during its

first year of operation.

SOLUTION:
To find the TOTAL SALARY

Lawyer
Paralegal Legal secretary Clerk

:
: : :

25*8*360*2=144000
20*8*360*2=115200 15*8*360*2=86400 10*8*360*2=57600 -----------------

Total

Rs : 403200
---------------

Overtime

400 hours

Legal sec
Clerk

:
:

200*22.5=4500
200*15 =3000 ______________

Total
+40% Fringe Benefits Total

:
:

410700
=164280 __________________

574980 ___________________

FIXED COST Insurance : 234000 (22000+32000+ 180000)

Office rent
Investment

: 168000(6000*28)
: 60000

Advertisement : 500000 -------------------Fixed cost Rs : 962,000

--------------------

NUMBER OF CLIENTS From The Given Probability:

20*0.10*360= Rs.720
30*0.30*360= Rs.3240 55*0.40*360= Rs.7920

85*0.20*360= Rs.6120
--------------Total clients New client consultation Variable Cost 18000*4 =18000 clients = Rs.4 = Rs.72000

RESULT:

Therefore 18,000 new clients must visit the law office for the venture to break even during its first year of operations.

PROBLEM 2
2) Using the information provided by the marketing consultant,

determine if it is feasible for the law office to achieve break-

even operations.

SOLUTION:
TOTAL SALES

18000 * 30 = 540000 30% of 540000 = 162000 20% of 18000 = 3600*2000 = 72,00,000 30% 72,00,000 = 21,60,000 Sales = 540000 + 2160000 = Rs 27,00,000

CONTRIBUTION Contribution = Sales Variable cost = 27,00,000 72,000 = Rs 26,28,000 PROFIT Profit = Contribution Fixed cost = 26,28,000 15,36,980 = Rs 10,91,020 BEP P/Vratio = (contribution/sales )*100 = (26,28,000/27,00,000)*100 = 97.33% BEP = Fixed cost/ P/Vratio = 1536980/97.53 BEP = Rs 1579143

NUMBER OF CLIENTS/DAY: Average no. of clients = 2700000/18000 = 150 clients

BEP = Fixed cost/Avg. no. of clients = 1536980/150 = 10247 clients/year

Clients for a day = 10247/360 = 28 or 29 clients Probability = 0.30

Margin of safety = Total sales BEP = 27,00,000 1579143 = 11,20,857

RESULT

Since the total sales is greater than break even sales and the

margin of safety is positive it is feasible for the law office to

achieve break even operations.

THANK YOU