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Task 2 APC Law Company specialises in copyright protection for authors. A client approached the law firm about handling his lawsuit against a large firm
Task 2 APC Law Company specialises in copyright protection for authors. A client approached the law firm about handling his lawsuit against a large firm company that he believes stole the plot from one of his novels for a madeforTV movie. The law partners estimated that the case would require 500 hours of professional labour. APC's accountant estimated the following direct costs: l Direct professional labour [500 hours] $75,000 l Direct support labour $20,000 l Fringe benefits for direct labour $15,000 l Photocopying $1,000 l Telephone calls $1,000 1 Total direct costs $112,000 Last year, APC's indirect costs totalled $450,000. The two law partners worked about 5000 professional labour hours. The law firm's policy is to mark up full cost by 20 per cent for the estimated price. Required: a. Indicate the cost driver that will link the indirect costs to the cost object. b. Calculate the estimated indirect cost rate that will be used to assign the cost to the cost object. Show all the workings in your answer. c. Using all of the information above, calculate the client's service price for this case. Show all the workings in your answer. d. A competing law firm traces only the direct professional labour hours as a direct cost and considers all other costs to be indirect. These indirect costs are allocated at an estimated rate of $160 per professional labour hour. The competitor uses the same markup rate as APC Law Company. Calculate the client's service price for this competitor firm. Show all the workings in your answer. e. Comment on the difference of estimated client's service price and costs between APC Law Company and its competitor firm. Include in your comments consideration of the approaches used by both companies to classify and assign the costs and how to monitor costs in each law firm
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