Question

In: Accounting

3) A local attorney employs ten full-time professionals. The budgeted compensation per employee is $80,000. The...

3) A local attorney employs ten full-time professionals. The budgeted compensation per employee is $80,000. The maximum billable hours for each client are 400. Clients always receive their full amount of time. All professional labour costs are included in a single direct cost category and are traced to jobs on a per-hour basis. Any other costs are included in a single indirect cost pool, allocated according to professional labour-hours. Budgeted indirect costs for the year are $400,000 and the firm had 20 clients. Required: a. What is the direct labour budgeted cost rate per hour? b. What is the indirect cost pool budgeted cost rate per hour?

Expert Solution

Here, A local attorney employs ten full-time professionals. The budgeted compensation per employee is $80,000.

So the Direct labor cost = Number of employees * Compensation per employee

Direct labor cost = 10 * $ 80,000

Direct labor cost = $ 800,000.

Further, The maximum billable hours for each client are 400 and the firm had 20 clients,

Thus, total hours to be worked = Number of clients * billable hours per client.

Total Budgeted hours to be worked = 20 * 400 = 8000 hours.

Now,

1.

Direct labour budgeted cost rate per hour = Direct Labor cost / Budgeted hours

Direct labor budgeted cost rate per hours = $ 800,000 / 8000

Direct labour budgeted cost rate per hour = $ 100 per hour.

2. Here, Budgeted indirect costs for the year are $400,000

Indirect cost pool budgeted cost rate per hour = Budgeted indirect cost / Budgeted hours

Indirect cost pool budgeted cost rate per hour = $ 400,000 / 8000

Indirect cost pool budgeted cost rate per hour = $ 50 per hour.

ekkarill92 answered 2 years ago

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