Question

Chapter 4 Case - ABC used in a Service Business
The Texas Law Firm has been using a Pre-determined Rate to assign the Indirect Costs of Professional
Support at a rate of $25 per Professional Labor Hour. Under this system the costs for 2 clients were
calculated as follows:
						Horne		Nguyen
	Professional Labor Cost:
		50 labor hours x $50				$2,500
		75 labor hours x $50						$3,750
	Professional Support:
		50 labor hours x $25				$1,250
		75 labor hours x $25						$1,875
	Total Client Costs					$3,750		$5,625
The firm decides to make some changes to it's billing system, as they feel they are loosing clients
due in inaccurate billings. The first change is to split the Professional Labor into 2 direct cost
categories as follows:
	Partner Labor Cost; $100 per hour
	Associate Labor Cost; $37.50 per hour
The second change is to have 2 indirect cost categories as follows:
	Legal Support; allocated at $20 per Professional Labor hour
	*reminder that Professionals are both Partners and Associates
	Secretarial Support; allocated at $25 per Partner Labor only
Prepare a billing statement for both Horne and Nguyen including both the Direct Costs
and the Indirect Costs using the above rates and applying them to the following:
	Horne used 40 Partner Labor hours and 10 Associate Labor hours
	Nguyen used 5 Partner Labor hours and 70 Associate Labor hours
1) Please review the Texas Law Firm Handout. What is the amount billed to Horne under the new system? 2) Please review the Texas Law Firm Handout. What is the amount billed to Nguyen under the new system?

Answer 1