Problem:
The law firm has 6 lawyers and 10 support people and uses job-order costing system to accumulate cost by client. Two departments are litigation and research and use different predetermined overhead rates for each department. At the beginning of the year, the partners made the following:
Research litigation
Planned attorney hours 2,500 11,600
Number of clients 1,000 230
Legal supplies 12,000 4,600
Direct attorney cost 132,000 696,000
Department overhead 70,000 406,000
The costs of clients are separated into three components: supplies, attorney cost, and overhead. Both departments base overhead on the number of attorney hours charged. Clients are billed all cost plus 20%, suppliers are charged on a per-client basis.
The following costs were recorded: attorney hours, research 55, attorney hours, litigation 175, and attorney cost $13,800
a) Compute the rate each department should use to assign overhead cost,
b) Compute the amount per client that each department should use to allocate supply costs,
c) Using the rates computed in requirements a and b, compute the total cost of case including overhead, supply charges, and attorney fees, and
d) Calculate the billing.