Walters and Witt, a law firm, is analyzing the profitability of its cases. During the year, the firm represented the Umberg Company in numerous routine legal issues, for which it charged a monthly retainer fee of $2,500. Budget information for the firm follows: Professional labor: Partners $ 500,000 Associates 900,000 Paralegals 600,000 Total $2,000,000 Overhead: Secretarial salaries $ 900,000 Depreciation of office equipment 300,000 Fringe benefits 400,000 Lease expense 200,000 Utilities 300,000 Communication expenses 250,000 Office supplies 150,000 Total $2,500,000 Partner, associates and paralegal hourly salary rates are $100, $60 and $20, respectively. Actual time spent for the Umberg cases follows: Actual Partners 23 hours Associates 42 hours Paralegals 72 hours Walters and Witt uses activity-based costing to determine the cost of its cases. With a consultant’s help, the firm has developed the following information about cost pools: Cost Pool Expenses Included Cost Allocation Base Secretarial support Secretarial salaries Partner labor hours Fringe benefits Fringe benefits Professional labor dollars Office support Depreciation, lease, utilities, communications and supplies Professional labor hours Using the information about: a) Compute the budgeted rate per unit of cost driver for each cost pool. b) Using activity-based costing, compute the cost of the Umberg work this year. c) Compute the profit that Walters and Witt had on the Umberg work this year
Walters and Witt, a law firm, is analyzing the profitability of its cases. During the year, the firm represented the Umberg Company in numerous routine legal issues, for which it charged a monthly retainer fee of $2,500. Budget information for the firm follows:
|
Professional labor: |
|
|
Partners |
$ 500,000 |
|
Associates |
900,000 |
|
Paralegals |
600,000 |
|
Total |
$2,000,000 |
|
Overhead: |
|
|
Secretarial salaries |
$ 900,000 |
|
Depreciation of office equipment |
300,000 |
|
|
400,000 |
|
Lease expense |
200,000 |
|
Utilities |
300,000 |
|
Communication expenses |
250,000 |
|
Office supplies |
150,000 |
|
Total |
$2,500,000 |
|
|
|
Partner, associates and paralegal hourly salary rates are $100, $60 and $20, respectively.
Actual time spent for the Umberg cases follows:
|
|
Actual |
|
Partners |
23 hours |
|
Associates |
42 hours |
|
Paralegals |
72 hours |
Walters and Witt uses activity-based costing to determine the cost of its cases. With a consultant’s help, the firm has developed the following information about cost pools:
|
Cost Pool |
Expenses Included |
Cost Allocation Base |
|
Secretarial support |
Secretarial salaries |
Partner labor hours |
|
Fringe benefits |
Fringe benefits |
Professional labor dollars |
|
|
Depreciation, lease, utilities, communications and supplies |
|
Using the information about:
a) Compute the budgeted rate per unit of cost driver for each cost pool.
b) Using activity-based costing, compute the cost of the Umberg work this year.
c) Compute the profit that Walters and Witt had on the Umberg work this year.
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