Wnight Associates is a recently formed law partnership. Wright Associates operates at capacity and USES a cost-based approach to pricing billing) each job. Currently it uses a simple costing system with a single direct-cost category (professional labor-hours) and a single indirect-oost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files for two of Wright's clients, Nader Enterprises and Magnet Inc, show the following: Click the icon to view the data using the simple costing system.) (Click the icon to view additional data.) Read the requirements. H: . Requirement 1. Calculate the revised indirect-cost allocation rale per professional labor- hour for Wright Associates when total indirect costs are $175,000. First determine the formula used to calculate the indirect-cost rate. Then enter the amounts in the fomula and calculate the rate per hour. (Abbreviation used: prof. = professional.) 1 - Indirect-cost rate per hour - x Data Table Data Table Nader Enterprises Magnet Inc. Professional lastar 2.500 hours 2,500 hours Professional labor costs at Wright Associates are $240 an hour. Indirect costs are allocated to cases at $125 an hour. Total indirect costs in the most recent period were $625.000 Rachel Halloway, the managing partner of Wright Associales, asks her assistant to callecl delals on these casts included in the $625,000 indirect-cosi poal that can be traced to each individual job. Aller analysis, Wright is able lo reclassify 5450,000 of the $625.000 as direct costs: Tatal cost of the jobs using the simples costing system are as follows: Magnet Inc. GOD.000 312.500 Direct professional labor Indirect costs allocated Nader Enterprises $ 600,QODS 312,500 $ 912,500 $ Other Direct Costs Nader Enterprises Magnet Inc. Research support labor 3 39.000 S 239,800 Computer time 4,500 28.000 Travel and allowances 14,000 79.000 Telephones/faxes 4,500 21.000 6,200 14,200 Photocopying 58,200 S 381,800 Total Halloway decides to calculate the costs of each job as if Wright had used six direct-oost pools and a single indirect-cost pool. The single indirect-oost pool would have $175,000 of costs and would be allocated to each case using the professional labor-hours base. 912,500 Total Requirements Requirements 1. Calculate the revised indirect-cost allocation rate per professional labor-hour for Wright Associates when total indirect costs are $175,000. 2. Compute the costs of the Nader Enterprises and Magnet Inc. jobs if Wright Associates had used its refined costing system with multiple direct-cost categories and one indirect-cost pool. 3. Compare the costs of Nader Enterprises and Magnet Inc. jobs in requirement 2 with those calculated using the simple costing system. Comment on the results
