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The Waterston Groupâ (WG) provides tax advice to multinational firms. WG charges clients forâ (a) direct professional timeâ (at an hourlyâ rate) andâ (b) support servicesâ (at 30% of the direct professional costsâ billed). The three professionals in WG and their rates per professional hour are asâ follows:
Professional | Billing Rate per Hour |
Myron Waterston | $640 |
Alexa Brown | 180 |
Jeremy Amesbury | 60 |
WG has just prepared the May 2011 bills for two clients. The hours of professional time spent on each client are asâ follows:
Hours per Client | ||||
Professional | Seattle Dominion | Beliz Enterprises | ||
Waterston | 24 | 3 | ||
Brown | 5 | 13 | ||
Amesbury | 36 | 49 | ||
Total | 65 | 65 |
Requirements
1. | What amounts did WG bill to Seattle Dominion and Beliz Enterprises for Mayâ2011? |
2. | Suppose support services were billed at $5050 per professionalâ labor-hour (instead ofâ 30% of professional laborâ costs). How would this change affect the amounts WG billed to the two clients for Mayâ 2011? Comment on the differences between the amounts billed in requirements 1 and 2. |
3. | How would you determine whether professional labor costs or professionalâlabor-hours is the more appropriate allocation base forâ WG's supportâ services? |
Requirement 1. What amounts did WG bill to Seattle Dominion and Beliz Enterprises for Mayâ 2011?
Determine the formula needed to calculate the total cost per professional for each client when WG allocates support costs atâ 30% of direct professional costs.
+ | ( | x | ) | = | Cost per professional |
Complete the table below to determine the amounts that WG billed to Seattle Dominion and Beliz Enterprises for May 2011. Begin with Seattle Dominion.
Seattle Dominion | |||
Direct | Amount | ||
Professional | Support | Billed to | |
Costs | Costs | Client | |
Myron Waterston | |||
Alexa Brown | |||
Jeremy Amesbury | |||
Total |
Beliz Enterprises | |||
Direct | Amount | ||
Professional | Support | Billed to | |
Costs | Costs | Client | |
Requirement 2. Suppose support services were billed at â$5050 per professionalâ labor-hour (instead ofâ 30% of professional laborâ costs). How would this change affect the amounts WG billed to the two clients for Mayâ 2011? Comment on the differences between the amounts billed in requirements 1 and 2.
Determine the formula needed to calculate the total cost per professional for each client when WG allocates support costs at â$5050 per professionalâ labor-hour.
+ | ( | x | ) | = | Cost per professional |
Complete the table below to determine what WG would have billed to Seattle Dominion and Beliz Enterprises for May 2009 if support services were billed at â$5050 per professionalâ labor-hour (instead ofâ 30% of professional laborâ costs). Begin with Seattle Dominion.
Seattle Dominion | |||
Direct | Amount | ||
Professional | Support | Billed to | |
Costs | Costs | Client | |
Myron Waterston | |||
Alexa Brown | |||
Jeremy Amesbury | |||
Total |
Beliz Enterprises | |||
Direct | Amount | ||
Professional | Support | Billed to | |
Costs | Costs | Client | |