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. 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 Required Activity Driver Billable hours Documents Billable hours Billable hours Documents Court dates Court dates Total Amount 200 30 200 200 30 6 6 Consumption by Service Type Litigation Mediation 75 75 75 16 5 5 Activity Cost 125 $30.000 14 125 125 14 1 $4,000 1,200 350 1,250 10,000 1 $5.000 $21,800 A. Calculations 1. Determine the cost of each type of case using a single plantwide rate for nonattorney costs based on billable hours. 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 Required A. Calculations Documents Billable hours Billable hours Documents Court dates Court dates 30 200 200 30 6 6 16 75 75 16 5 5 14 125 125 14 1 1 $4,000 1,200 350 1,250 10,000 $5.000 $21,800 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.