(Job costing and pricing) Attorney Maria Conroe uses a job order costing sys-tem to collect costs of client engagements. Conroe is currently working on a case for Stacie Olivgra. During the first three months of 2010, Conroe logged 95 hours on the Olivgra case.
In addition to direct hours spent by Conroe, her office assistant has worked 35 hours typing and copying 1,450 pages of documents related to the Olivgra case. Con-roe’s assistant works 160 hours per month and is paid a salary of $4,800 per month. The average cost per copy is $0.06 for paper, toner, and machine rental. Telephone and fax charges for long-distance calls on the case totaled $145. Last, Conroe has estimated that total office overhead for rent, utilities, parking, and so on amount to $9,600 per month and that, during a normal month, the office is open every hour that the assistant is at work. Overhead charges are allocated to clients based on the number of hours of assistant’s time.
a. Conroe desires to set the billing rate so that she earns, at a minimum, $190 per hour, and covers all direct and allocated indirect costs related to a case. What minimum charge per hour (rounded to the nearest $10) should Conroe charge Olivgra? (Hint: Be sure to include office overhead.) What would be the total billing to Olivgra?
b. All the hours that Conroe spends at the office are not necessarily billable hours. In addition Conroe did not consider certain other expenses such as license fees, country club dues, automobile costs, and other miscellaneous expenses when she determined the amount of overhead per month. Therefore, Conroe is considering billing clients for direct costs plus allocated indirect costs plus a 40 percent margin to cover nonbillable time as well as other costs. What will Conroe charge Olivgra in total for the time spent on her case?
c. Which billing method is more likely to be accepted by clients and why?