& Associates is a law firm specializing in labor relations andemployee-related work. It employs 25

professionals (5 partners and 20 associates) who work directly with its clients. Previously the firm accounted for all professional labor cost in a single direct-cost account and all other costs in a single indirect-cost pool.

The average budgeted total compensation per professional for 2017 is $117,000. Each professional is budgeted to have 1,800 billable hours to clients in 2017.

All professionals work for clients to their maximum 1,800 billable hours available. All professional labor costs are included in a single direct-cost category and are traced to jobs on a per-hour basis. All costs of Lewis & Associates other than professional labor costs are included in a single indirect-cost pool (legal support) and are allocated to jobs using professional labor-hours as the allocation base. The budgeted level of indirect costs in 2017

is $2,385,000.The cost estimates for the Richardson, Inc. job, which requires 90

budgeted hours of professional labor and for the Punch, Inc. job, which requires130

budgeted hours of professional labor are as follows:

	Richardson	Punch
Direct-costs	$5,850	$8,450
Indirect-costs	4,770	6,890
Total costs	$10,620	$15,340

Lewis has just completed a review of its job-costing system.

This review included a detailed analysis of how past jobs used the firm's resources and interviews with personnel about what factors drive the level of indirect costs. Management concluded that a system with two direct-cost categories (professional partner labor and professional associate labor) and two indirect-cost categories(general support and secretarial support) would yield more accurate job costs.

Budgeted information for 2017 related to the two direct-cost categories is asfollows:

Professional Partner Labor	Professional Associate Labor
Number of professionals	5	20
Hours of billable time per professional	1,800 per year	1,800 per year
Total compensation (average per	$243,000	$90,000
professional)

Budgeted information for

2017

relating to the two indirect-cost categories is as follows:

	General Support	Secretarial Support
Total costs	$1,980,000	$405,000
Cost-allocation base	Professional labor-hours	Partner labor-hours

1. Compute the 2017 budgeted direct-cost rates for (a) professional partners and (b) professional associates.

2. Compute the 2017 budgeted indirect-cost rates for (a) general support and (b) secretarial support.

3. Compute the budgeted costs for the Richardson and Punch jobs, given the following information:

	Richardson, Inc.	Punch, Inc.
Professional partners	36 hours	26 hours
Professional associates	54 hours	104 hours

4. Comment on the results in requirement 3. Why are the job costs different from those computed using the firm's previous method?

5. Would you recommend Lewis & Associates use the job-costing system in the previous method or the job-costing system in this problem? Explain.