The law firm of Regal and Porter is examining its client base to determine how profitable its regular clients are.Its analysis indicates that Hawthorne,Inc.paid $179,200 in fees last year,but cost the firm $208,600 ($168,000 in billable labor,supplies,and copying,and $40,600 in allocated common fixed costs).If Regal and Porter dropped Hawthorne,Inc.as a client,and all fixed costs are unavoidable,how would profit be affected?
A)$0
B)Increase $29,400
C)Decrease $11,200
D)Decrease $179,200

Question

Quizplus · Accepted Answer

If Hawthorne,Inc. is dropped as a client, the firm would save $179,200 in fees but would still incur the $40,600 in allocated common fixed costs. Therefore, the net loss from dropping the client would be $208,600 - $179,200 = $29,400. This means the law firm's profit would decrease by $29,400 if they drop Hawthorne, Inc. as a client.

The Law Firm of Regal and Porter Is Examining Its