Gallagher Associates, a law firm, hires Attorney Mary Nault at an annual salary of $ 195, 500. The law firm expects her to spend 2,300 hours a year performing legal work for clients. Indirect costs are assigned to clients based on attorney billing hours. Firm attorneys are expected to work a total of 16,000 direct labor hours this year. Before the fiscal year begins, Doleman estimates that the total indirect costs for the upcoming year will be $ 640,000.

a. What would be the hourly (cost) rate to Gallagher Associates of employing Nault?

b. If Nault works on Client 367 for 17 hours, what direct labor cost would be traced to Client 367?

c. What is the indirect cost allocation rate?

d. What indirect costs will be allocated to Client 367?

e. What is the total job cost for Client 367?

Instructions are listed below.

Explanation:

Giving the following information:

Nault annual salary = $195,500.

Nault hours = 2,300 hours.

Indirect costs are assigned to clients based on attorney billing hours.

Firm attorneys are expected to work a total of 16,000 direct labor hours this year.

Doleman estimates that the total indirect costs for the upcoming year will be $ 640,000.

A) Unitary cost = total cost / Q

Unitary cost = 195,500/2,300 = $85 per hour

B) Direct labor = 17hours * $85 = $1,445

C) To calculate the indirect cost allocation rate we need to use the following information:

Estimated indirect cost rate = total estimated indirect costs for the period / total amount of allocation base

Estimated indirect cost rate = 640,000/16,000 = $40 per direct labor hour

D) Allocated cost = Estimated indirect cost rate * Actual amount of allocation base

Allocated cost = $40*17 hours = $680

E) Total cost = direct labor + indirect cost = 1,445 + 680 = $2,125