Question: Identify the factors that Alex should consider when deciding whether or not to accept this offer. Limit your answers to 250 words (including supporting computations).

QUESTION 3 Acaciawood Partners LLP is a law firm that specializes in intellectual property ligation and counselling. Acaciawood practices job-order costing as every client is different and unique. Alex, the managing director of Acaciawood, received a call from Alpha Science Ltd, a potential new client of Acaciawood. In the call, the CEO of Alpha Science Ltd asked if Acaciawood would be willing to represent Alpha Science in a patent lawsuit against Omega Technology Inc. For the job, Alpha Science would pay $2,000,000 and reimburse all hard costs incurred. To decide whether or not to accept this offer, Alex collected the following information: 1. 2. 3. 3. This job requires two lawyers, one senior and one junior, to work for six weeks (30 hours per week). Direct labor costs cover the wage costs of lawyers who work on specific client jobs. Acaciawood charges this cost to clients based on the number of labor hours worked on the job multiplied by the hourly wage. The hourly wage is $3,500 for junior lawyers and $5,500 for senior lawyers. Employee benefits represent the cost of benefits provided to lawyers, including pension contribution, medical and dental insurance, and social security payment. This cost is charged to client at the amount of 10% of direct labor costs charged to the job. Expenses paid directly to a vendor on behalf of a client for a specific job are classified as hard costs. Hard costs include court tiling tees, witness tees, and laboratory fees etc., and are estimated as 5% of direct labor costs charged to the job. Given that hard costs are fully reimbursed by the client, Acaciawood considers hard costs to be a "loan" to the client rather than a cost to the law firm. 4. 5. 6. Acaciawood charges legal research costs to specific client jobs. Legal research costs are $60,000 for the first 150 hours worked on a job and increase by $2,000 for each additional 10 hours worked. Overhead includes (1) salaries and benefits given to employees who do not directly work on client jobs such as staff members in the HR or accounting department; (2) other costs incurred at the corporate level such as office rent and maintenance of shared facilities. Most of the overhead is fixed. Overhead is allocated to jobs at the rate of $350 per direct labor hour. On patent lawsuits, Acaciawood typically earns an average profit of 15% of total costs assigned to a job. In the call, the CEO of Alpha Science Ltd. mentioned that Clifford Legal LLP, another prominent law firm in the local area, has expressed interest in representing Alpha Science in this lawsuit and that Alpha Science has plans to sue several other companies for patent infringements in the next few months. 7. 8