The Wolfson Group (WG) provides tax advice to multinational firms. WG charges clients for (a) direct professional time (at an hourly rate) and (b) support services (at 30% of the direct professional costs billed). The three professionals in WG and their rates per professional hour are as follows:

Professional Billing Rate per Hour

Mark Wolfson $520

Alice Boucher 180

Jerome Alonso 60

WG has just prepared the May 2014 bills for two clients. The hours of professional time spent on each client are as follows:

	Hours per Client
Professional	Seattle Dominion	Dublin Enterprises
Wolfson	26	4
Boucher	5	14
Alonso	39	52
Total	70	70

1.What amounts did WG bill to Seattle Dominion and Dublin Enterprises for May 2014?

2.Suppose support services were billed at $5050 per professional labor-hour (instead of 30% of professional labor costs). How would this change affect the amounts WG billed to the two clients for May 2014? Comment on the differences between the amounts billed in requirements 1 and 2.

3.How would you determine whether professional labor costs or professionallabor-hours is the more appropriate allocation base for WG's support services?

Requirement 1. What amounts did WG bill to Seattle Dominion and Dublin Enterprises for May2014?

Determine the formula needed to calculate the total cost per professional for each client when WG allocates support costs at 30% of direct professional costs.

+

(

x

)

=

Cost per professional

Complete the table below to determine the amounts that WG billed to Seattle Dominion and Dublin Enterprises for May 2014. Begin with Seattle Dominion.

Seattle Dominion
	Direct		Amount
	Professional	Support	Billed to
	Costs	Costs	Client
Mark Wolfson
Alice Boucher
Jerome Alonso
Total

Dublin Enterprises

Direct

Amount

Professional

Support

Billed to

Costs

Costs

Client

Mark Wolfson

Alice Boucher

Jerome Alonso

Total

Requirement 2. Suppose support services were billed at $5050 per professional labor-hour (instead of 30% of professional labor costs). How would this change affect the amounts WG billed to the two clients for May 2014?

Comment on the differences between the amounts billed in requirements 1 and 2.

Determine the formula needed to calculate the total cost per professional for each client when WG allocates support costs at $5050 per professional labor-hour. (Abbreviations used: hrs. = hours.)

+

(

x

)

=

Cost per professional

Complete the table below to determine what WG would have billed to Seattle

Dominion and

Dublin

Enterprises for May

2014

if support services were billed at

$5050

per professional labor-hour (instead of 30% of professional labor costs). Begin with

Seattle Dominion.

Seattle Dominion
	Direct		Amount
	Professional	Support	Billed to
	Costs	Costs	Client
Mark Wolfson
Alice Boucher
Jerome Alonso
Total

	Dublin Enterprises
	Direct		Amount
	Professional	Support	Billed to
	Costs	Costs	Client
Mark Wolfson Alice Boucher Jerome Alonso Total
uses a higher proportion of Wolfson's time, which is less more costly. This attracts an equal the highest the lowest support-services charge when allocated on the basis of direct professional labor costs.