Question

(Variance Analysis-Cost) Burnet, Duckworth, & Palmer, a local law firm, has been having trouble maintaining its profitability. The managing partner, Michael Burnet, has asked you to come in and help him identify why they are missing their profit goals. He says that normally labor costs are about 35-40% of the client’s billing costs, supplies 5-7%, and “overhead” (admin and clerical support) about 12-15%, leaving about a 40% profit for a typical client. He gives you the following information on four recent representative clients:

Client	Job Price	Labor	Supplies	Overhead
Clark	$1,913	$641	$96	$314
Dobson	$1,102	$480	$72	$235
Jackson	$1,007	$442	$66	$217
Thomson	$1,607	$560	$84	$275
Total	$5,629	$2,123	$318	$1,041

What does this information tell you?

What is the percentage of supply costs for each?

What is the percentage of labor for each?

Answer 1

Burnet, Dukworth & Palmer, A Local Lawyer Firm Touble in Maintaining Profitability Normally, Labor Costs are about 35-40% of the client's Billing Cost Supplies are 5-7% Overheads (Admin & Clerical Support) about 12-15% leaving about 40% for Profits for a typical Client 96 Client Clark Dobson Jackson Thomson Total Job Price Supplies 1.913 1,102 72 1,007 66 1,607 5,629 318 | % Remarks 5.02% Within the range as estimated 6.53% Within the range as estimated 6.55% Within the range as estimated 5.23% Within the range as estimated 5.65% On Average - It is within range Job Price 1913 1102 Client Clark Dobson Jackson Thomson Total Labor 641 480 442 560 2,123 % Remarks 33.51% Lower Cost than Expected 43.56% High Cost as compared to Expected Cost 43.89% High Cost as compared to Expected Cost 34.85% Lower Cost than Expected 37.72% On Average - It is within range 1007 1607 5,629 Client Clark Dobson Jackson Thomson Job Price Overhead 1913) 314 1102 235 10071 217 1607 275 % Remarks 16.41% High Overhead Cost than expected 21.32% | High Overhead Cost than expected 21.55% High Overhead Cost than expected 17.11% High Overhead Cost than expected 18.49% On Average - Overhead Cost is high by 3.49% and affecting the profitability Total 5,629 1,041

Labor 641 Client Clark Dobson Jackson Thomson Job Price 1,913 1,102 1,007 1,607 480 442 560 Supplies Overhead Profitability 314 862 72 | 235 315 66 217 282 84 2751 688 318 1,041 2,147 % 45.06% 28.58% 28.00% 42.81% Total 5,629 2,123 38.14% Comment: Client Clark & Thomson is giving good profits, even higher than the expectation of 40%, whereas Client Dobson & Jackson is unable to give expected profits due to high labor cost and high overhead cost