Job costing and pricing
Attorney Maria Conroe uses a job order costing system to collect costs of client engagements. Conroe is currently working on a case for Stacie Olivgra. During the first three months of 2013, Conroe logged 101 hours on the Olivgra case.
In addition to direct hours spent by Conroe, her office assistant has worked 32 hours typing and copying 1,450 pages of documents related to the Olivgra case. Conroe's assistant works 156 hours per month and is paid a salary of $4,212 per month. The average cost per copy is $0.06 for paper, toner, and machine rental. Telephone and fax charges for long-distance calls on the case totaled $180. Last, Conroe has estimated that total office overhead for rent, utilities, parking, and so on amount to $9,400 per month and that, during a normal month, the office is open every hour that the assistant is at work. Overhead charges are allocated to clients based on the number of hours of assistant's time.
a. Conroe desires to set the billing rate so that she earns, at a minimum, $198 per hour, and covers all direct and allocated indirect costs related to a case. What minimum charge per hour should Conroe charge Olivgra? Round the rate to the nearest $10 per hour (for example, $124 rounds to $120). (Hint: Be sure to include office overhead.)
$__________________ per hour, rounded to the nearest $10.
What would be the total billing to Olivgra?
b. All the hours that Conroe spends at the office are not necessarily billable hours. In addition, Conroe did not consider certain other expenses such as license fees, country club dues, automobile costs, and other miscellaneous expenses when she determined the amount of overhead per month. Therefore, Conroe is considering billing clients for direct costs plus allocated indirect costs plus a 32 percent margin to cover nonbillable time as well as other costs. What will Conroe charge Olivgra in total for the time spent on her case? When required, round your answer to the nearest dollar.
c. Which billing method is more likely to be accepted by clients?
- Select your answer -Method used in part (a)Method used in part (b)Either method will be equally acceptableItem 4