Job costing with single direct-cost category, single indirect-cost pool, law firm. Wigan Partners is a recendy formed law partnership. Ellery Hanley, the managing partner of Wigan

. Partners, has just finished a tense phone call with Martin Offiah, president of Widnes Coal.

Offiah complained about the price Wigan charged for some conveyancing (drawing up property documents) legal work done for Widnes Coal. He requested a breakdown ofthe charges. He also indicated to Hanley that a competing law firm, Hull & Kingston, was seeking more business with Widnes Coal and that he was going to ask them to bid for a conveyancing job next month. Offiah ended the phone call by saying that if Wigan bid a price similar to the one charged last month, Wigan would not be hired for next month’s job.

Hanley is dismayed by the phone call. He is also puzzled because he believes that con¬

veyancing is an area where Wigan Partners has much expertise and is highly efficient. The Widnes Coal phone call is the bad news ofthe week. The good news is that yesterday Hanley received a phone call from its only other client (St. Helen’s Glass) saying it was very pleased with both the quality of the work (primarily litigation) and the price charged on its most recent case.

Hanley decides to collect data on the Widnes Coal and St. Helen’s Glass cases. Wigan Partners uses a cost-based approach to pricing (billing) each legal case. Currently it uses a sin¬

gle direct-cost category (for professional labour time) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labour-hours per case. The case files show the following:

Widnes Coal St. Helen’s Glass Professional labour time 104 hours 96 hours Professional labour costs at Wigan Partners are $84 an hour. Indirect costs are allocated to cases at $126 an hour. Total indirect costs in the most recent period were $25,200.

Required 1.Why is it important for Wigan Partners to understand the costs associated with individual cases?
2. Present an overview diagram of the existing job-costing system.
3. Compute the costs of the Widnes Coal and St. Helen’s Glass cases.