Question

Roiann and Dennett Law Office employs 12 full-time attorneys and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor-hour basis that includes both attorney and paraprofessional hours. Following is information for 2020:

Budget Actual

Indirect costs                                                                $270,000         $300,000

Annual salary of each attorney                          $100,000         $110,000

Annual salary of each paraprofessional              $ 29,000           $ 30,000

Total professional labor-hours                           50,000 dlh        60,000 dlh

1. What are the actual direct-cost rate and the actual indirect-cost rate, respectively, per professional labor-hour?

2. How much should the client be billed in an actual costing system if 200 professional labor-hours are used?

3. How much should the client be billed in an normal costing system if 200 professional labor-hours are used?

Answer 1

Answer:

1. What are the actual direct-cost rate and the actual indirect-cost rate, respectively, per professional labor-hour?

Actual direct-cost rate	27.00	per professional labor-hour
Actual indirect-cost rate	5.00	per professional labor-hour

2. How much should the client be billed in an actual costing system if 200 professional labor-hours are used?

The amount client be billed in a actual costing system when 200 professional labor-hours are used

6,400

3. How much should the client be billed in an normal costing system if 200 professional labor-hours are used?

The amount client be billed in a normal costing system when 200 professional labor-hours are used

7,040

Calculation:

1.

Here, first we need to calculate the actual direct-cost rate and the actual indirect-cost rate per professional labor-hour.

For the calculation of actual direct-cost rate ,we need to multiply the Actual annual salary of each attorney with the  full-time attorneys and then multiply the Actual Annual salary of each paraprofessional with the paraprofessionals. And then divide it with the Total professional labor-hours

Actual direct-cost rate = [($110,000 x 12) + ($30,000 x 10)] / 60,000 = $27.00 actual direct rate

For the calculation of actual indirect-cost rate ,we need to divide the actual Indirect costs with the actual total professional labor-hours

Actual indirect-cost rate = $300,000 / 60,000 = $5.00 actual indirect rate

2.

Here we need to calculate the amount that client be billed in an actual costing system if 200 professional labor-hours are used.

We need to calculate the by multiplying the actual direct rate with the professional labor-hours and then the actual indirect rate with the professional labor-hours. Then sum it up.

($27.00 x 200) + ($5.00 x 200) = $6,400

3.

Here we need to calculate the amount that client be billed in an normal costing system if 200 professional labor-hours are used.

First we need to calculate the actual direct-cost rate and the actual indirect-cost rate per professional labor-hour.

For the calculation of Budget direct-cost rate ,we need to multiply the Budget annual salary of each attorney with the  full-time attorneys and then multiply the Budget Annual salary of each paraprofessional with the no of paraprofessionals. And then divide with the Total professional labor-hours.

Actual direct-cost rate = [($100,000 x 12) + ($29,000 x 10)] / 50,000 = $29.80 budgeted direct rate

For the calculation of budgeted indirect-cost rate ,we need to divide the budgeted Indirect costs with the budgeted total professional labor-hours

Actual indirect-cost rate = $270,000 / 50,000 = $5.40 budgeted indirect rate

Then we need to calculate the amount that client be billed in an normal costing system if 200 professional labor-hours are used.

We need to calculate the by multiplying the actual direct rate with the professional labor-hours and then the actual indirect rate with the professional labor-hours. Then sum it up.

($29.80 x 200) + ($5.40 x 200) = $7,040