The Wong 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 Rate per Hour
Mark Wilmer $500
Ashley Bennet 170
John Amesbury 70
WG has just prepared the May 2017 bills for two clients. The hours of professional time spent on each client are as follows:
Hours per Client
Professional San Antonio Dominion Amsterdam Enterprises
Wilmer 21 3
Bennet 4 11
Amesbury 30 41
Total 55 55
1. What amounts did the WG bill to San Antonio Dominion and Amsterdam Enterprises for May 2013?
2. Suppose support services were billed at $55 per professional labor-hour (instead of 30% of professional labor costs). How would this change affect the amounts WG billed to the two clients for May 2013? Comment on the differences between the amounts billed 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?
Check: Determine the formula needed to calculate the total cost per professional for each client when WG allocates support costs at 30% of direct professional costs.
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