Alternative allocation bases for a professional services firm. The Walliston 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
Max Walliston $640
Alexa Boutin 220
Jacob Abbington 100
WG has just prepared the May 2011 bills for two clients. The hours of professional time spent on each client are as follows:
1. What amounts did WG bill to San Antonio Dominion and Amsterdam Enterprises for May 2011?
2. Suppose support services were billed at $75 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 2011? 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 supportservices?