Wigan Associates is a recently formed law partnership. Ellery Hanley, the managing partner of Wigan Associates, has just finished a tense phone call with Martin Offiah, president of Widnes Coal. Offiah complained about the price Wigan charged for some legal work done for Widnes Coal. Hanley also received a phone call from its only other client (St. Helen's Glass), who said it was very pleased with both the quality of the work and the price charged on its most recent case.

Wigan Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a single direct-cost category (for professional labour hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labour-hours per case. The case files show the following:

Professional labour costs at Wigan Associates are $70 an hour. Indirect costs are allocated to cases at $105 an hour. Total indirect costs in the most recent period were $21,000.
REQUIRED
1. Why is it important for Wigan Associates to understand the costs associated with individual cases?
2. Compute the costs of the Widnes Coal and St. Helen's Glass cases using Wigan's simple costing system.

Transcribed Image Text:

Widnes Coal St. Helen's Glass Professional labour 104 hours 96 hours