Silver Law Firm - Case Study Silver Law firm provides litigation and mediation services to a variety of clients. Attorneys keep track of the time they spend on each case, which is used to charge fees to clients at a rate of $300 per hour. A management advisor commented that activity-based costing might prove useful in evaluating the costs of its legal services, and the firm has decided to evaluate its fee structure by comparing ABC to its alternative cost allocations. The following data relate to a typical month at the firm. During a typical month the firm handles seven mediation cases and three litigation cases. Consumption by Service Type Activity Total Litigation Mediation Activity Driver Amount Cost Providing legal advice Billable hours 200 75 125 $30.000 Overhead costs Internal support departments Preparing documents Documents 30 16 14 $4,000 Occupying office space Heating and lighting of office External support departments Billable hours 200 75 125 1,200 Billable hours 200 75 125 350 Registering court documents Retaining consultants Documents 30 16 14 1,250 (investigators, psychiatrists) Court dates 10,000 Using contract services (couriers, security guards) Court dates $5,000 $21.800 6. 5 1 Total overhead costs Required A. Calculations 1. Determine the cost of each type of case using a single plantwide rate for nonattorney costs based on billable hours. 2. Determine the cost of each type of case using separate departmental overhead rates for the internal support department (based on number of documents) and external support department (based on billable hours). 3. Determine the cost of providing legal services to each type of case using activity-based costing (ABC). B. Analysis 4. Compare and discuss the costs assigned under each method, explaining why they differ. 5. What changes do you recommend in how the firm operates, if it wishes to maximize profits? Compare alternatives.
Silver Law Firm - Case Study Silver Law firm provides litigation and mediation services to a variety of clients. Attorneys keep track of the time they spend on each case, which is used to charge fees to clients at a rate of $300 per hour. A management advisor commented that activity-based costing might prove useful in evaluating the costs of its legal services, and the firm has decided to evaluate its fee structure by comparing ABC to its alternative cost allocations. The following data relate to a typical month at the firm. During a typical month the firm handles seven mediation cases and three litigation cases. Consumption by Service Type Activity Total Litigation Mediation Activity Driver Amount Cost Providing legal advice Billable hours 200 75 125 $30.000 Overhead costs Internal support departments Preparing documents Documents 30 16 14 $4,000 Occupying office space Heating and lighting of office External support departments Billable hours 200 75 125 1,200 Billable hours 200 75 125 350 Registering court documents Retaining consultants Documents 30 16 14 1,250 (investigators, psychiatrists) Court dates 10,000 Using contract services (couriers, security guards) Court dates $5,000 $21.800 6. 5 1 Total overhead costs Required A. Calculations 1. Determine the cost of each type of case using a single plantwide rate for nonattorney costs based on billable hours. 2. Determine the cost of each type of case using separate departmental overhead rates for the internal support department (based on number of documents) and external support department (based on billable hours). 3. Determine the cost of providing legal services to each type of case using activity-based costing (ABC). B. Analysis 4. Compare and discuss the costs assigned under each method, explaining why they differ. 5. What changes do you recommend in how the firm operates, if it wishes to maximize profits? Compare alternatives.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter3: Cost Behavior And Cost Forecasting
Section: Chapter Questions
Problem 57P: Identifying Fixed, Variable, Mixed, and Step Costs Consider each of the following independent...
Related questions
Question
100%
Silver Law Firm – Case Study
Silver Law firm provides litigation and mediation services to a variety of clients. Attorneys keep track of the time they spend on each case, which is used to charge fees to clients at a rate of $300 per hour. A management advisor commented that activity-based costing might prove useful in evaluating the costs of its legal services, and the firm has decided to evaluate its fee structure by comparing ABC to its alternative cost allocations. The following data relate to a typical month at the firm. During a typical month the firm handles seven mediation cases and three litigation cases.
Transcribed Image Text:Silver Law Firm - Case Study
Silver Law firm provides litigation and mediation services to a variety of clients.
Attorneys keep track of the time they spend on each case, which is used to charge
fees to clients at a rate of $300 per hour. A management advisor commented
that activity-based costing might prove useful in evaluating the costs of its legal
services, and the firm has decided to evaluate its fee structure by comparing ABC
to its alternative cost allocations. The following data relate to a typical month at
the firm. During a typical month the firm handles seven mediation cases and
three litigation cases.
Consumption by Service Type
Activity
Total
Litigation Mediation Activity
Driver
Amount
Cost
Providing legal advice
Billable hours
200
75
125
$30,000
Overhead costs
Internal support departments
Preparing documents
Documents
30
16
14
$4,000
Occupying office space
Heating and lighting of office
External support departments
Billable hours
200
75
125
1,200
Billable hours
200
75
125
350
Registering court documents
Documents
30
16
14
1,250
Retaining consultants
(investigators, psychiatrists)
Court dates
6
1
10,000
Using contract services
(couriers, security guards)
Court dates
6.
$5,000
Total overhead costs
$21.800
Required
A. Calculations
1. Determine the cost of each type of case using a single plantwide rate for nonattorney
costs based on billable hours.
2. Determine the cost of each type of case using separate departmental overhead rates for
the internal support department (based on number of documents) and external support
department (based on billable hours).
3. Determine the cost of providing legal services to each type of case using activity-based
costing (ABC).
B. Analysis
4. Compare and discuss the costs assigned under each method, explaining why they differ.
5. What changes do you recommend in how the firm operates, if it wishes to maximize
profits? Compare alternatives.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub