Carlson and Carly, a law firm, is analyzing the profitability or its cases. Duri
ID: 2449510 • Letter: C
Question
Carlson and Carly, a law firm, is analyzing the profitability or its cases. During the year, the firm represented the Media Company in numerous routine legal issues, for which it charged a monthly retainer fee of $2,500. Budgeted information as follows:
Professional labor:
Partners $500,000
Associates 900,000
Paralegals 600,000
Total $2,000,000
Overhead:
Secretarial salaries $900,000
Depreciation Office Equip 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 $100, Associates $60 and Paralegal $20 hourly salary rates respectively.
Actual time spent for the Umberg cases follows:
Partners 23 hours
Associates 42 hours
Paralegals 72 hours
Carlson and Carly 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, Professional labor hours
utilities, communications
and supplies
Required:
1) Compute the budgeted rate per unit of cost driver for each cost pool.
2) Using activity-based costing, compute the cost of the Media work this year.
3) Compute the profit that Carlson and Carly had on the Media work this year.
Please, show your work in all requisitions. Thanks
Explanation / Answer
Professional labor:
Professional labor:
Budget Salary/Hr Budgeted Hours Partners 500,000 100 5,000 Associates 900,000 60 15,000 Paralegals 600,000 20 30,000 Total 2,000,000 50,000 Ans 1 Cost Pool Budgeted expense Cost Allocation basis Budgeted cost allocation basis Hrs Budgeted Rate per unit of cost driver Secretarial Support 900,000 Partner Labor hrs 5,000 180 Fringe benefits 400,000 Professional labor hrs 50,000 8 Office Support 1,200,000 Professional labor Hrs 50,000 24 (fringe benefit allocation basis taken as professional hours instaed of professional dollars as mentioned in the question) Actual Time spent for umberg case Professionals Hrs Partners 23 Associates 42 Paralegals 72 Total 137 Cost of the Media work uning Activity based costing Ans 2. Cost Pool activity cost driver Budgeted Rate per unit of cost driver Hrs consumed by the allocation basis Total cost alloacted Secretarial Support 180 23 4,140 Fringe benefits 8 137 1,096 Office Support 24 137 3,288 Total cost of the media work 8,524 Monthly retainer fee charged for the media work = $2500 Yearly revenue from retainer fee of media work =$30,000 Cost of the media work $8,524 Ans 3. Profit on the media work $ 21,476.00