Steven Clark and two of his colleagues are considering opening a
law office in a large metropolitan area that would make inexpensive
legal services available to those who could not otherwise afford
services. The intent is to provide easy access for their clients by
having the office open 360 days per year, 16 hours each day from
7:00 a.m. to 11:00 p.m. The office would be staffed by a lawyer,
paralegal, legal secretary, and clerk-receptionist for each of the
two eight-hour shifts.
In order to determine the
feasibility of the project, Clark hired a marketing consultant to
assist with market projections. The results of this study show that
if the firm spends $1,055,000 on advertising the first year, the
number of new clients expected each day will be 65. Clark and his
associates believe this number is reasonable and are prepared to
spend the $1,055,000 on advertising. Other pertinent information
about the operation of the office follows:
The only charge to each new client would be $75 for the initial
consultation. All cases that warrant further legal work will be
accepted on a contingency basis with the firm earning 30 percent of
any favorable settlements or judgments. Clark estimates that 20
percent of new client consultations will result in favorable
settlements or judgments averaging $5,500 each. It is not expected
that there will be repeat clients during the first year of
The hourly wages of the staff are projected to be $65 for the
lawyer, $55 for the paralegal, $45 for the legal secretary, and $35
for the clerk-receptionist. Fringe benefit expense will be 40
percent of the wages paid. A total of 700 hours of overtime is
expected for the year; this will be divided equally between the
legal secretary and the clerk-receptionist positions. Overtime will
be paid at one and one-half times the regular wage, and the fringe
benefit expense will apply to the full wage.
Clark has located 6,000 square feet of suitable office space
which rents for $71 per square foot annually. Associated expenses
will be $61,500 for property insurance and $86,000 for
It will be necessary for the group to purchase malpractice
insurance, which is expected to cost $375,000 annually.
The initial investment in the office equipment will be $135,000.
This equipment has an estimated useful life of four years.
The cost of office supplies has been estimated to be $9 per
expected new client consultation.
Determine how many new clients must visit the law office being
considered by Steven Clark and his colleagues in order for the
venture to break even during its first year of operations.
(Do not round intermediate calculations and round your
final answer up to nearest whole number.)
Compute the law firmAc??cs safety margin. (Round final
answer to the nearest whole dollar amount.)
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