Silver lake law firm rovides litigation and mediation services to a variety of clients. Attorneys keep track of the time they spend on each case, which is used to charge fees to clients at a rate of $300 per hour. A management advisor commented that activity-based costing might prove useful in evaluating the costs of its legal services, and the firm has decided to evaluate its fee structure by comparing ABC to its alternative cost allocations. The following data relate to a typical month at the firm. During a typical month the firm handles seven mediation cases and three litigation cases. Consumption by Service Type Activity Total Litigation Mediation Activity Driver Amount Cost Providing legal advice Billable hours 200 75 125 $30,000 Overhead costs Internal support departments Preparing documents Documents 30 16 14 $4,000 Occupying office space Billable hours 200 75 125 1,200 Heating and lighting of office Billable hours 200 75 125 350 External support departments Registering court documents Documents 30 16 14 1,250 Retaining consultants (investigators, psychiatrists) Court dates 6 5 1 10,000 Using contract services (couriers, security guards) Court dates 6 5 1 $5,000 Total overhead costs $21,800 Required Calculations Determine the cost of each type of case using a single plantwide rate for nonattorney costs based on billable hours. Determine the cost of each type of case using separate departmental overhead rates for the internal support department (based on number of documents) and external support department (based on billable hours). Determine the cost of providing legal services to each type of case using activity-based costing (ABC). Analysis Compare and discuss the costs assigned under each method, explaining why they differ. What changes do you recommend in how the firm operates, if it wishes to maximize profits? Compare alternatives.

Silver Law Firm - Case Study Silver Law firm provides litigation and mediation services to a variety of clients. Attorneys keep track of the time they spend on each case, which is used to charge fees to clients at a rate of $300 per hour. A management advisor commented that activity-based costing might prove useful in evaluating the costs of its legal services, and the firm has decided to evaluate its fee structure by comparing ABC to its alternative cost allocations. The following data relate to a typical month at the firm. During a typical month the firm handles seven mediation cases and three litigation cases. Activity Driver Billable hours Consumption by Service Type Total Litigation Mediation Activity Amount Cost 200 125 $30.000 Documents Billable hours Billable hours 14 125 125 $4,000 1.200 350 Providing legal advice Overhead costs Internal support departments Preparing documents Occupying office space Heating and lighting of office External support departments Registering court documents Retaining consultants (investigators, psychiatrists) Using contract services (couriers, security guards) Total overhead costs Documents 30 0 16 5 14 1 1.250 10,000 Court dates Court dates 1 $5.000 $21,800 Required A. Calculations 1. Determine the cost of each type of case using a single plantwide rate for nonattorney costs based on billable hours. 14 Documents Billable hours Billable hours $4,000 1.200 125 350 Documents 14 1.250 Preparing documents Occupying office space Heating and lighting of office External support departments Registering court documents Retaining consultants investigators, psychiatrists) Using contract services (couriers, security guards) Total overhead costs Court dates 1 10,000 Court dates 1 $5.000 $21,800 Required A. Calculations 1. Determine the cost of each type of case using a single plantwide rate for nonattorney costs based on billable hours. 2. Determine the cost of each type of case using separate departmental overhead rates for the internal support department (based on number of documents) and external support department (based on billable hours). 3. Determine the cost of providing legal services to each type of case using activity-based costing (ABC). B. Analysis 4. Compare and discuss the costs assigned under each method, explaining why they differ. 5. What changes do you recommend in how the firm operates, if it wishes to maximize profits? Compare alternatives