Question : 5.Walters and Witt, a law firm, analyzing the profitability of : 1416280

 

5.Walters and Witt, a law firm, is analyzing the profitability of its cases.  During the year, the firm represented the Umberg Company in numerous routine legal issues, for which it charged a monthly retainer fee of $2,500.  Budget information for the firm follows:

 

Professional labor:

Partners$  500,000

Associates900,000

Paralegals600,000

Total$2,000,000

Overhead:

Secretarial salaries$   900,000

Depreciation of office equipment300,000

Fringe benefits400,000

Lease expense200,000

Utilities300,000

Communication expenses250,000

Office supplies150,000

Total$2,500,000

Partner, associates and paralegal hourly salary rates are $100, $60 and $20, respectively.

 

Actual time spent for the Umberg cases follows:

     Actual

Partners23 hours

Associates42 hours

Paralegals72 hours

 

In addition, the firm incurred $875 in travel costs related to Umberg, but the firm had budgeted for $1,000 of direct costs.

 

Walters and Witt uses activity-based costing to determine the cost of its cases.  With a consultant’s help, the firm has developed the following information about cost pools:

 

Cost Pool    Expenses Included    Cost Allocation Base

Secretarial supportSecretarial salariesPartner labor hours

Fringe benefitsFringe benefitsProfessional labor dollars

 

Office supportDepreciation, lease, utilities, communications and supplies

Professional labor hours

 

(a)Compute the budgeted rate per unit of cost driver for each cost pool.

 

(b)Using activity-based costing, compute the cost of the Umberg work this year.

 

(c)Compute the profit that Walters and Witt had on the Umberg work this year.