Harrison Hartwell and Zenith is a successful law firm employing 26 professionals
ID: 2358113 • Letter: H
Question
Harrison Hartwell and Zenith is a successful law firm employing 26 professionals. There is an internal controversy over allocation of the $104,000 purchase cost of a highly sophisticated electronic law library. Each professional employee of the firm has been assessed $4,000 as a charge against the profit distribution account of each of the 26 members affected. In addition, it is expected to cost about $2,600 per month to update information for the library system, resulting in a monthly $100 assessment against each professional in the firm. Required: (a) As a new junior member of the professional legal group of 26, why might you not like the proposed electronic library cost allocation? (b) Propose an alternate allocation method for both the initial purchase cost and the updating charge that is more equitable (fair). (c) Could one argue for no allocation at all in this case? On what basis?Explanation / Answer
The junior members of the law firm would probably resist paying as much of the cost as more senior members, arguing that it isn't "fair." Equity (fairness) is difficult to define, but people seem to intuitively know when inequity exists.
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(b) The allocation of the purchase cost could be shared on the basis of each legal staff members' salary--the ability to "bear" the cost.
The monthly charge could be assessed on the basis of usage, i.e., the number of hours each staff member uses the library resources. It is relatively easy to gather time use information in a computerized system.
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(c) Yes, the initial purchase cost could simply be deducted from the law firm's revenue before bonuses beyond salaries are calculated.
The same treatment could be used for the monthly updating charge. However, the firm could make use of allocation of this ongoing charge to limit, discourage, or encourage utilization of the new resource
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