A law office employs full-time attorneys and five paraprofessionals. For 2012 indirect costs were budgeted at $225,000, but actually amounted to $350,000. Direct and indirect costs are applied on a professional labour-hour basis which includes both attorney and paraprofessional hours. Total budgeted labour-hours were 25,000; however, actual labour-hours were 30,000.
What is the actual indirect-cost rate, if a client used 5,000 professional labour-hours?

Question

Quizplus · Accepted Answer

To calculate the actual indirect-cost rate, we need to divide the total actual indirect costs by the actual total professional labour-hours:

Actual Indirect-Cost Rate = Actual Indirect Costs / Actual Professional Labour-Hours

Actual Indirect Costs = $350,000
Actual Professional Labour-Hours = 30,000

Actual Indirect-Cost Rate = $350,000 / 30,000 = $11.67 per professional labour-hour

To find the indirect costs for a specific number of professional labour-hours, we multiply the indirect-cost rate by the number of professional labour-hours:

Indirect Costs = Indirect-Cost Rate x Professional Labour-Hours

Indirect Costs = $11.67 x 5,000 = $58,350

Therefore, the actual indirect-cost rate for a client using 5,000 professional labour-hours is $11.67, and the indirect costs for that client would be $58,350. The best choice is E.

A Law Office Employs Full-Time Attorneys and Five Paraprofessionals