Wigan

Associates is a recently formed law partnership.

Wigan

Associates operates at capacity and uses acost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a singledirect-cost category (professional labor-hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files for two of

Wigan's

clients,

Jabar

Enterprises and

Marble

Inc., show the following:

Jabar Enterprises	Marble Inc.
Professional labor	2,600 hours	2,400 hours

Professional labor costs at

Wigan

Associates are

$200

an hour. Indirect costs are allocated to cases at

$120

an hour. Total indirect costs in the most recent period were

$600,000.

Total cost of the jobs using the simple costing system are as follows:

	Jabar
	Enterprises
Direct professional labor	$520,000
Indirect costs allocated	312,000
Total	$832,000

Marble

Inc.

$480,000

288,000

$768,000

the icon to view the data using the simple costing system.)

Rachel

Higgins,

the managing partner of

Wigan

Associates, asks her assistant to collect details on those costs included in the

$600,000

indirect-cost pool that can be traced to each individual job. After analysis,

Wigan

is able to reclassify

$400,000

of the

$600,000

as direct costs:

Other Direct Costs	Jabar Enterprises	Marble Inc.
Research support labor	$41,000	$191,400
Computer time	6,000	25,000
Travel and allowances	11,000	81,000
Telephones/faxes	3,000	21,000
Photocopying	6,300	14,300
Total	$67,300	$332,700

Higgins

decides to calculate the costs of each job as if

Wigan

had used sixdirect-cost pools and a single indirect-cost pool. The single indirect-cost pool would

the icon to view additional data.)Read the

requirements

1.	Calculate the revised indirect-cost allocation rate per professional labor-hour for Wigan Associates when total indirect costs are $200,000.
2.	Compute the costs of the Jabar Enterprises and Marble Inc. jobs if Wigan Associates had used its refined costing system with multiple direct-cost categories and one indirect-cost pool.
3.	Compare the costs of Jabar Enterprises and Marble Inc. jobs in requirement 2 with those calculated using the simple costing system. Comment on the results.

Now compute the total costs of each job.

	Jabar
	Enterprises
Direct costs:
Direct professional labor
Research support labor
Computer time
Travel and allowances
Telephones/faxes
Photocopying
Total direct costs
Indirect costs to be allocated
Total costs of job

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