A Lawyer Allocates Overhead Costs Based on His Hours Working

question 18

Essay

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, she wants to pay herself $50 per hour for working with clients. In other words, the lawyer's billing rate is the sum of her hourly fee ($50) and a fee to recover the expected overhead spread over 2,000 hours. The lawyer, however, does not bill all of her clients based on covering overhead costs and her 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 her 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 she receives half. Actual overhead was $210,000.
Required:
What does the lawyer earn during the year after expenses?

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Definitions:

Fishes

Aquatic, gill-bearing animals that lack limbs with digits, often covered in scales, and residing in both freshwater and saltwater environments.

Flatworm

A group of simple invertebrates known for their flat bodies, including both free-living and parasitic species like tapeworms.

Planaria

A genus of flatworms, which are often used in scientific studies due to their remarkable regenerative abilities.