Chiara and Co, a firm of accountants, employs 4 qualified accounting staff at an annual salary cost of £45,500 each. Each accountant works 1,820 hours in a year. Some of these hours are spent on administrative and business development activities which the accounting firm cannot charge to the clients. The firm charges clients £40 for each hour that each accountant spends working on the clients' accounts, tax returns and on general business advice. The firm has fixed overhead costs of £87,000 per annum. What is Chiara and Co's break-even point in hours?

Question

Quizplus · Accepted Answer

To find the break-even point in hours, calculate the total fixed costs and divide by the contribution per hour. Total fixed costs are the sum of the accountants' salaries and overheads: (4 accountants x £45,500) + £87,000 = £270,000. The contribution per hour is the charge per hour minus the cost per hour: £40 - (£45,500 / 1,820) = £15. Therefore, the break-even point is £270,000 / £15 = 18,000 hours. Since this is for 4 accountants, divide by 4 to get 4,500 hours per accountant. However, the correct calculation should be based on the total hours for all accountants, which is 5,800 hours.

Chiara and Co, a Firm of Accountants, Employs 4 Qualified