Problem: Fitch and Hughes, P.C.

Fitch and Hughes, P.C., is a small law firm specializing in family law, wills, estates, and trusts. The firm, begun in 1980 by Jason Fitch and George Hughes, currently has three attorneys who are shareholders, and three associate attorneys. The firm is managed by George Hughes since the retirement of his cofounder of the firm, Jason Fitch. In early December, Hughes was thinking about the firm's workload for the first half of next year. Given the current client load and projections for the next six months, Hughes estimated the number of billable hours for the firm is as follows:

The three attorneys who are shareholders each receive a monthly salary of $10,500, while the associate attorneys are paid $7,000 each month. The three shareholders, of course, also receive additional compensation at the end of each year when the firm's profits are distributed to them based on their proportionate shareholdings. Under normal circumstances, each of the six attorneys can bill a total of 175 hours per month. When any attorney bills more than 175 hours, he or she receives additional compensation of $80 per hour for associate attorneys or $120 per hour for the shareholders. The four shareholders have agreed that no attorney can bill more than 225 hours per month. In the interest of fairness, they also have decided that any "overtime" work required would be divided equally among all attorneys. This arrangement would allow each attorney the opportunity to increase income while preventing a few from benefiting excessively over the others. While Jason Fitch does not really want to work any longer, he has agreed that he would be willing to help out in extreme situations at a rate of $150 per hour, as long as he is guaranteed a minimum of 30 hours during any single month. The firm could, of course, hire an additional associate attorney at the same salary as the current associates. If an additional attorney is hired, Hughes wants to do so by the beginning of the year so that the new attorney is familiarized with the firm as soon as possible. He is strongly opposed to letting any attorney go during the six-month period.

Questions

1. Determine the cost of a plan which uses only overtime and the services of Jason Fitch.

2. Suppose clients pay the same hourly rate regardless of which attorney bills the hours, and Hughes is interested in determining the lowest-cost plan for the firm. What should Hughes do, given the current policies of the firm?

3. What other considerations might influence the plan that Hughes develops?