Question
ABC Law Firm employs 15 professional staff members (25 associates and 5 partners). The law firm accumulates costs in 2 direct cost categories (associate hours
ABC Law Firm employs 15 professional staff members (25 associates and 5 partners). The law firm accumulates costs in 2 direct cost categories (associate hours and partner hours) and 2 indirect cost pools (general support and secretarial support). Budgeted 2017 information is shown below:
DIRECT COSTS
Partner Associate
Number of employees 3 12
Billable hours (per employee) 2,000 per year 1,800 per year
Annual salary (per employee) $270,000 $100,000
INDIRECT COSTS
General Support Secretarial Support
Total Costs $2,225,000 $650,000
Cost Allocation Base Total direct labor hours Partner labor hours
ABC Law firm uses the normal approach to job costing. They have 2 separate jobs coming up and their clients would like a proposed price estimate. ABC Law firm typically bills clients for the total cost incurred by the law firm plus a 30% profit margin. Information on the 2 upcoming jobs is reported below:
123 Client XYZ Client
Partner Hours 52 25
Associate Hours 80 110
Compute the direct labor cost rate for:
Partners:
Associates:
Compute the indirect labor cost rate for:
General Support
Secretarial Support
Compute the budgeted costs for:
123 Client
XYZ Client
Compute the proposed price for:
123 Client
XYZ Client
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