Question

firm’s legal department costs are significant, employing 70 lawyers. The firm’s main business focus is developing new drugs for human consumption. Upon developing a new product patents are required. Contracts must be created for each product between three customer divisions: private hospitals (50% of sales), public hospitals (35% of sales) and direct to doctors (15% of sales) to ensure proper recognition of revenues from each product. Also, the firm must be prepared to represent litigate future legal cases should a drug therapy have a lawsuit brought against it for harm to patients. This year two new drugs were developed.

Each lawyer earns $90,000 per year in total compensation.

35 lawyers work in the patent division. 25 work in the contract design division with 10 each supporting the two hospital divisions and 5 support the doctor direct sales. 10 work in the litigation department supporting equally all divisions.  

Additional legal costs to be accounted for:

Patent costs: $900,000 per new drug plus labor above allocated based on sales.

Costs to design contracts: $10,000 per private (350) & public hospital (150).                     $1,000 per doctor (1500) using new drugs.

Costs to litigate cases: Labor costs on a direct basis from above; plus $2,000,000                annually (based on 2000 customers noted in design above)

Based on above information allocate labor, development, design and litigation costs to the private, public and doctor divisions

Answer 1