A law firm uses activity-based pricing. The company’s activity pools are as foll
ID: 2765192 • Letter: A
Question
A law firm uses activity-based pricing. The company’s activity pools are as follows:
Cost Pool
Annual Estimated Cost
Cost Driver
Annual Driver Quantity
Consultation
190,000
Number of consultations
100 consultations
Administrative Costs
135,000
Admin labor hours
9300 labor hours
Client Service
93,000
Number of clients
100 clients
The firm had two consultations with this client and required 130 administrative labor hours. What additional costs will be charged to this customer?
Cost Pool
Annual Estimated Cost
Cost Driver
Annual Driver Quantity
Consultation
190,000
Number of consultations
100 consultations
Administrative Costs
135,000
Admin labor hours
9300 labor hours
Client Service
93,000
Number of clients
100 clients
Explanation / Answer
Computation of the additional cost will be charged to the customer.We have,
The cost of two consultations = (190,000/100) x 2 = $ 3,800
The cost of 130 administrative labour hours = (135,000/9,300) x 130 = $ 1,887
The additional cost will be charged to this customer is $ 5,687(3,800 + 1,887).
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