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 $2,500. Budget information for the firm follows:
Secretarial salaries$ 900,000
Depreciation of office equipment300,000
Partner, associates and paralegal hourly salary rates are $100, $60 and $20, respectively.
Actual time spent for the Umberg cases follows:
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.