Winken, Blinken, and Nod is a law firm specializing in real estate litigation. In addition to the three partners, the firm employs nine associates who work directly with clients. The average budgeted compensation for the twelve professionals is $240,000. Each lawyer is budgeted at 1,500 billable hours per year. All professional labor costs are included in a single direct cost pool and are traced to jobs on a per-hour basis. All non-professional labor costs are included in a single overhead cost pool and are allocated to jobs using professional labor hours as the allocation base. Budgeted overhead costs total $1,800,000. The firm is considering bidding on some work with a local university. The job is expected to require 100 hours of professional labor.Required:1) Compute the budgeted
direct cost rate per hour of professional labor.2) Compute the budgeted (that is, predetermined) overhead cost rate per hour of professional labor.3) Compute the budgeted cost for the university job.
What will be an ideal response?
Answers will vary
1) Budgeted direct cost rate per hour of professional labor:
$240,000/1,500 = $160 per professional labor hour
2) Budgeted overhead cost rate per hour of professional labor:
$1,800,000/(1,500 hours × 12) = $100 per professional labor hour
3) Budgeted cost for the university job:
| Direct cost ($160 × 100) = | $ | 16,000 | |
| Overhead cost ($100 × 100) = | 10,000 | ||
| $ | 26,000 |
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