Ellsbury Associates is a recently formed law partnership. Ellsbury Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a single direct-cost category (professional labor-hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files for two of Ellsbury's clients,PuritanCoal and St. BreeSt. Bree's Glass, show thefollowing:

	Puritan Coal	St. Bree's Glass
Professional labor	115 hours	95 hours

Professional labor costs at Ellsbury Associates are $80 an hour. Indirect costs are allocated to cases at $120 an hour. Total indirect costs in the most recent period were $25,200.

Total cost of the jobs using the simple costing system are as follows:

Puritan Coal St.Bree's Glass

Direct Professional Labor $ 9200 7600 Indirect Costs allocated 13,800 11,400

Total

Dixon Halloway,the managing partner of Ellsbury Associates, asks his assistant to collect details on those costs included in the 25,200 indirect-cost pool that can be traced to each individual job. After analysis,Ellsbury is able to reclassify $18,900 of the $25,200 as direct costs:

Other Direct Costs Puritan Coal St. Bree's Glass

Research support labor $ 1,500 8,200

Computer time 800 1200

Travel and allowances 700 4,200

Telephones/faxes 300 1,000

Photocopying 250 750

Total $3,550 15,350

Halloway decides to calculate the costs of each job as if Ellsbury had used six direct cost-pools and a single indirect-cost pool. The single indirect-cost pool would have $6,300 of costs and would be allocated to each case using the professional labor-hours base.

Requirments

1.

Calculate the revised indirect-cost allocation rate per professional labor-hour for Ellsbury Associates when total indirect costs are$6,300.

2.

Compute the costs of the Puritan and St. BreeSt. Bree's jobs if Ellsbury Associates had used its refined costing system with multiple direct cost categories and one indirect-cost pool.

3.

Compare the costs of Puritan and St. BreeSt. Bree's jobs in Requirement 2 with those calculated using the simple costing system. Comment on the results.

Requirement 1. Calculate the revised indirect-cost allocation rate per professional labor-hour for Ellsbury Associates when total indirect costs are $6,300.

First determine the formula used to calculate the indirect-cost rate. Then enter the amounts in the formula and calculate the rate per hour. (Abbreviation used: prof. = professional.)

/

=

Indirect-cost rate per hour