Classifying Relevant and Irrelevant Items. The law firm of Taylor. Taylor, and T

Question

Classifying Relevant and Irrelevant Items. The law firm of Taylor. Taylor, and Tower has been asked to represent a local client. All legal proceedings will he held out of town in Chicago. Required The law firm's accountant has asked you to help determine the incremental cost of accepting this client. Classify each of the following items on the basis of their relationship to this engagement. Item may have multiple classifications. The case will require three attorneys to stay four nights m a Chicago hotel The predicted hotel bill is $2,400. Taylor, Taylor, and Tower's professional staff is paid S2,000 for out-of-town assignments. Last year, depreciation on Taylor, Taylor, and lower's of lice was S25.000. Round-trip transportation to Chicago is expected to cost S250 per person. The firm has recently accepted an engagement that will require partners to spend two weeks in Cincinnati. The predicted out-of-pocket costs of this trip are$8,500. The firm has.a maintenance contract on its computer equipment that will cost $2,200 next year. If the firm accepts the client and sends attorneys to Chicago, it will have to decline a conflicting engagement in Miami that would have provided a net cash inflow of $15.000. The firm's variable overhead is &80 per client hour. The firm pays S250 year for Mr Tower's subscription to a law journal. Last year the firm paid $.3,500 to increase the insulation in its building.

Explanation / Answer

Expense Cost Type Remarks 1 Amount paid for Three Attorney stay Relevant cost, outlay This cost will be incurred specifically for this assignmnet 2 Addition amount paid to staff for out of toen assignment Relevant cost, outlay This cost will be incurred only if this assignmnet is taken up. 3 Depreciation Irrelevant cost , Sunk This cost will remain whether this assignment is taken up or not 4 Round trip cost Relevant cost, outlay This cost will be incurred specifically for this assignmnet 5 Cost on another assignment in Cincinnati Irrelevant cost , Outlay This cost has no reference to chicago assignment, but it is expense to be paid , therefore outlay irrelevant 6 Maintenance contract Irrelevant cost , Sunk This cost will remain whether this assignment is taken up or not 7 Net cash flow from another assignment Relevant cost, Opportunity This assignment reflects next best alternative available to firm. 8 Variable Overhead Relevant cost, outlay Variable overhead occurs in proportion to assignments taken, So Relevant 9 Subscription of Law Journal Irrelevant cost , Sunk This cost will remain whether this assignment is taken up or not 10 Amount expensed on Building Irrelevant cost , Sunk This amount has already been expensed

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