Barrett Associates, a law firm, hires Attorney Odessa Nault at an annual salary

Question

Barrett Associates, a law firm, hires Attorney Odessa Nault at an annual salary of $240,000. The law firm expects her to spend 2,400 hours a year performing legal work for clients. Indirect costs are assigned to clients based on attorney billing hours. Firm attorneys are expected to work a total of 12,000 direct labor hours this year. Before the fiscal year begins, Barrett estimates that the total indirect costs for the upcoming year will be $360,000. 1. 2. 3. 4. What would be the hourly (cost) rate to Barrett Associates of employing Nault? If Nault works on Client 367 for 18 hours, what direct labor cost would be traced to Client 367? What is the indirect cost allocation rate? What indirect costs will be allocated to Client 367? What is the total job cost for Client 367? 5.

Explanation / Answer

PART 1 & 2

1./

HOURLY RATE FOR EMPLOYING NAULT

= ANNUAL SALARY / EXPECTED SPENDING HOUR

= $240000 / 2400

= $100 PER HOUR

2./

DIRECT LABOUR COST TRACED TO CLINT 367

= HOUR WORKED BY NAULT * RATE PER HOUR

= 18 HOURS * $100

= $1800

PART 3 & 4

3./

INDIRECT LABOUR ALLOCATION RATE

= TOTAL INDIRECT COST / TOTAL ATTORNEY BILLINH HOUR

= $360000 / 12000 HOURS

= $30 PER HOUR

4./

INDIRECT COST ALLOCATED TO CLINT 367

=HOURS WORKED BY NAULT * RATE PER HOUR

= 18 * $30

= $540

PART 5

5./

DIRECT LABOUR COST ALLOCATED = $1800

ADD INDIRECT LABOUR COST ALLOCATED = $540

   TOTAL COST FOR CLINT 367 = $2340

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