Question

The Wright Group (WG) provides tax advice to multinational firms. WG charges clients for (a) direct professional time (at an hourly rate) and (b) support services (at 30% of the direct professional costs billed). The three professionals in WG and their rates per professional hour are as follows:

Professional                                    Billing Rater per hour
Manny Wright                                       $450
Allison Borzi                                         $190
Jack Andersen                                     $60

WG has just prepared the May 2017 bulls for two clients. The hours of professional time spent on each count are shown in the photo below.

and M i Data Table mal fo Hours per Client San Antonio Dominion Madrid Enterprises Professional Wright Borzi Anderson Total Print Done

1. What amounts did WG bill to San Antonio Dominion and Madrid Enterprises for May 2017?

2. Suppose support services were billed at $55 per professional labor hour (instead if 30% of professional labor costs.) How would this change affect the amounts WG billed to the two clients for May 2017? Comment on the differences between the amounts bulked in requirements 1 and 2.

3. How would you determine whether professional labor costs or professional labor hours is the more appropriate allocation base for WG's support services?

Answer 1

Support Amount I Support Direct profesional costs particulars Billed to I client 15210 Manny wright (450X26); (1700x300) 111700 (00 950 1235 Allison Borzi (19005),(95 ox 360) Jacks andessen (60X39); (2340x 30 ) 3o42 2340 100 Total 14990 4497 I 19487 r mount of Billing to San Antonio Dominion Direct profesional cost - 14990 support costs - 4497 Amount Billed to client - 19487 Amount of Billing to Madrid enterprises to Direct profesional cost i 79580 (4550 X4+190814)+(609) support cost o 2274 1580 30) 9854

2) If support services were billed at $ 55 per profesional labour hour insted of 30% of profesional tabor costs, In such case support searice Billed to San Antonio dominion 5 53 با آنها = 3950 - Support Service Billed to madrid enterprises 70x50 = 3650 As we can see this change in billing of suppost service will lead to lesser billing in case of San Antonio Dominion & highes billing in case of Sera Madrid enterprises we should bill its support serrices on the basis of profesional labor costs as cast involved in mooviding support suorices, is not a direct costs therefore it should not be billed on the basis of working profesional hours It is an Indirect cost that should be billed on specific of poofesional costs. 3