Legal Beagles offers a variety of legal services. They have three support activi

Question

Legal Beagles offers a variety of legal services. They have three support activities - investigations, secretarial and research. The following data has been collected over the past month. The lawyers had 1,244 billable hours over this time period. Direct labor costs are $100 per hour. The staffing capacity for support activities is determined by the estimated billable hours.

1. If a single volume-based cost driver is used what will be the most likely rate used to assign the costs of support activities?

2. If investigation hours, secretarial hours, and inspections respectively are used as activity-based cost drivers what will be the most likely cost driver rate used to assign the costs of support activities? The cost drivers costs are ordered above for investigation, secretarial and inspections, respectively.

3. For a recent case ten hours of investigation services, five secretarial hours, two inspections and twenty billable lawyer hours were recorded. Using activity-based costing and the previous information what are the costs of this case?

Support Activities Resource Costs Activity Volumes Investigation $50,000 500 Investigation Hours Secretarial $5,760 480 Secretarial Hours Research $6,500 100 Inspections

Explanation / Answer

1. If a single volume-based cost driver is used what will be the most likely rate used to assign the costs of support activities?

Total cost of support activities
($50,000+$5,760+$6,500) = $62,260
Single volume based cost driver rate
= $62,260/1244
= $50.04 or most likely $50 (Answer B)

2. If investigation hours, secretarial hours, and inspections respectively are used as activity-based cost drivers what will be the most likely cost driver rate used to assign the costs of support activities? The cost drivers costs are ordered above for investigation, secretarial and inspections, respectively.
___________________________________________________
   Support       Resource         Activity            Cost driver
Activities    Activity Costs      Volumes                rate
____________________________________________________
Investigation   $50,000   500 Invest. Hrs.  50,000/500 = $100
Secretarial        $5,760   480 Secret. Hrs.   5,760/480 = $12
Research          $6,500   100 Inspections     6,500/100 = $65
____________________________________________________
              Answer is A i.e. $100, $12, $65

3. For a recent case ten hours of investigation services, five secretarial hours, two inspections and twenty billable lawyer hours were recorded. Using activity-based costing and the previous information what are the costs of this case?

Cost of the case
Billable lawyer hour cost 20 hrs. X $100    = $2,000
Investigations      10 hours X $100            = $1,000
Secretarial             5 hours X  $12            =     $60
Research               2 hours X $65             =    $130
                                                                -----------
Total Cost                                                 $3,190
                                                                ========

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