P3-8 Allocating Overhead Costs
The law firm of Dewey, Louie and Howe has six lawyers and ten support people. The firm uses job-order costing system to accumulate cost by client. There are two departments, research and litigation. The firm uses a different predetermined overhead rate for each department. At the beginning of the year, the partners made the following estimates:
Planned attorney hours 2,500 11,600
Number of clients 1,000 230
Legal Supplies $12,000 $4,600
Direct attorney cost $132,000 $696,000
Department overhead $70,000 $406,000
The cost to clients are separated into three components: supplies, attorney costs and overhead. Both departments base overhead on the number of attorney hours charged. Supplies are charged on a per-client basis. Clients are billed all costs plus 20%. Case DR 9312 was open on January 3 and closed June 17. During that period, the following costs and time were recorded.
Attorney hours, research 55
Attorney hours, litigation 175
Attorney cost $13,800
a. Compute the rate each department should use to assign overhead cost.
b. Compute the amount per client that each department should use to allocate supply cost.
c. Using the rates computed in requirements (A) and (B), compute the total cost of case DR9312, including overhead, supply charges and attorney fees.
d. Calculate the billing for case DR9312.
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