Please use the following information to answer the following question...

- Discuss the best way to allocate costs in this example and include approximate difference in profits between Corporate and Individual clients. What are the potential advantages and disadvantages of the activity-based system?

Duwe Chetam and Howe:

The law firm of Duwe, Cheatam and Howe provides legal services for clients. During the year corporate clients required 5,000 hours of legal services, while individuals required 3,000 hours. The firm has traditionally used direct labor hours to assign overheads. However, Ms. Duwe believes services to business clients cost more than services to individuals and is considering an activity-based costing system. The firm's revenues and costs for the year are show below:

	Corporate	Individual	Total
Revenue	$150,000	$150,000	$300,000
Expenses:
Lawyers' salaries	$100,000	$ 50,000	$150,000
Overhead:
Filing			$ 10,000
Quality control			$ 5,000
Data entry			$ 25,000
Total Overhead			$ 40,000

Mr. Cheatam has kept records of the following data for use in the activity-based costing system:

		Activity Level
Overhead Cost	Cost Driver	Corporate	Individual
Filing	Number of clients	5	5
Quality control	Number of hours spent	75	25
Data entry	Number of pages entered	1,000	1,500