Fonseca, Ruiz, and Dunn is a large, local accounting firm located in a southwestern city. Carlos Ruiz, one of the firm's founders, appreciates the success his firm has enjoyed and wants to give something back to his community. He believes that an inexpensive accounting services clinic could provide basic accounting services for small businesses located in the barrio. He wants to price the services at cost. Since the clinic is brand new, it has no experience to go on. Carlos decided to operate the clinic for 2 months before determining how much to charge per hour on an ongoing basis. As a temporary measure, the clinic adopted an hourly charge of $25, half the amount charged by Fonseca, Ruiz, and Dunn for professional services. The accounting services clinic opened on January 1. During January, the clinic had 120 hours of professional service. During February, the activity was 150 hours. Costs for these two levels of activity usage are as follows: 120 Professional Hours 150 Professional Hours
Salaries:
Senior accountant $2,500 $2,500
Office assistant 1,200 1,200
Internet and software subscriptions 700 850
Consulting by senior partner 1,200 1,500
Depreciation (equipment) 2,400 2,400
Supplies 905 1,100
Administration 500 500
Rent (offices) 2,000 2,000
Utilities 332 365
Required:
1. Classify each cost as fixed, variable, or mixed, using hours of professional service as the activity driver.
Salaries:
Senior accountant Fixed cost
Office assistant Fixed cost
Internet and software subscriptions Mixed cost
Consulting by senior partner Variable cost
Depreciation (equipment) Fixed cost
Supplies Mixed cost
Administration Fixed cost
Rent (offices) Fixed cost
Utilities Mixed cost
2. Use the high-low method to separate the mixed costs into their fixed and variable components. (Note: Round variable rates to two decimal places and fixed amounts to the nearest dollar.)
Components
Mixed Cost Variable Rate Fixed Amount
Internet and software subscriptions $ 5 $ 100
Supplies $ 6.50 $ 125
Utilities $ 1.10 $ 200