Cost Allocation and Contingency Fees

question 4

Essay

Cost Allocation and Contingency Fees
A lawyer allocates overhead costs based on his hours working with different clients.The lawyer expects to have $200,000 in overhead during the year and expects to work on clients' cases 2,000 hours during the year.In addition he wants to pay himself $50 per hour for working with clients.The lawyer,however,does not bill all of his clients based on covering overhead costs and his own salary.Some clients pay her on contingency fees.If the lawyer works with a client on a contingency fee basis,the lawyer receives half of any settlement for his client.During the year the lawyer works 1,200 hours that are billable to clients.The remaining hours are worked on a contingency basis.The lawyer wins $300,000 in settlements for his clients of which he receives half.Actual overhead was $210,000,
What does the lawyer earn during the year after expenses?

---

Definitions:

Expense Allocation

The process of identifying, aggregating, and assigning costs to cost objects like departments, products, or projects.

Operating Departments

Operating departments are the functional areas within an organization directly involved in producing the company's main goods or services, such as production or sales departments.

Direct Expenses

Direct expenses are costs that can be directly traced to a specific department, project, or activity, such as raw materials and labor used in the production of goods.

Cycle Efficiency

The effectiveness and efficiency of a business process or cycle in achieving its objectives without waste.