Service industry, job costing, law firm

Kidman & Associates is a law firm specializing in labor relations and employee-related work. It employs 30 professionals (5 partners and 25 associates) who work directly with its clients. The average budgeted total compensation per professional for 2014 is $97,500. Each professional is budgeted to have 1,500 billable hours to clients in 2014. All professionals work for clients to their maximum 1,500 billable hours available. All professional labor costs are included in a single direct-cost category and are traced to jobs on a per-hour basis. All costs of Kidman & Associates other than professional labor costs are included in a single indirect-cost pool (legal support) and are allocated to jobs using professional labor-hours as the allocation base. The budgeted level of indirect costs in 2014 is $2,475,000.

Required:
1. Prepare an overview diagram of Kidman's job-costing system.
2. Compute the 2014 budgeted direct-cost rate per hour of professional labor.
3. Compute the 2014 budgeted indirect-cost rate per hour of professional labor.
4. Kidman & Associates is considering bidding on two jobs:
a. Litigation work for Richardson, Inc., which requires 120 budgeted hours of professional labor
b. Labor contract work for Punch, Inc., which requires 160 budgeted hours of professional labor
Prepare a cost estimate for each job.

1.

2. =
=
= $65 per professional labor-hour

Note that the budgeted professional labor-hour direct-cost rate can also be calculated by dividing total budgeted professional labor costs of $2,925,000 ($97,500 per professional ? 30 professionals) by total budgeted professional labor-hours of 45,000 (1,500 hours per professional ? 30 professionals), $2,925,000 ? 45,000 = $65 per professional labor-hour.

=
=
=
= $55 per professional labor-hour

4. Richardson Punch
Direct costs:
Professional labor, $65 ? 120; $65 ? 160
Indirect costs:
Legal support, $55 ? 120; $55 ? 160
$ 7,800

6,600
$14,400
$10,400

8,800
$19,200