Problem 1

Bob & Friends is a law firm specializing in white collar crime. It employs 25 professionals (5 partners and 20 associates) who work directly with its clients. The average budgeted total compensation per professional for 2021 is $95,500. Each professional is budgeted to have 1,400 billable hours to clients in 2021. All professionals work for clients to their maximum 1,400 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 Bob & Friends 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 2021 is $2,275,000.

Required:

1. Prepare an overview diagram of Bob's job-costing system.

2. Compute the 2021 budgeted direct-cost rate per hour of professional labor.

3. Compute the 2021 budgeted indirect-cost rate per hour of professional labor.

4. Bob & Friends is considering bidding on two jobs:

a. Litigation work for Joe, Inc., which requires 110 budgeted hours of professional labor

b. Labor contract work for Smith, Inc., which requires 145 budgeted hours of professional labor. Prepare a cost estimate for each job.