Reference no: EM132632710

Syracuse Law is a law firm specialized in environmental law. Kristy Lynn, the managing partner of Syracuse Law, has just finished a heated discussion with Peter Sans, CEO of Finger Lakes Nikola, a utility company based in upstate New York and owner of several combined cycle power plants. Sans was very disappointed with the invoice he had just received from Syracuse Law invoicing for the legal work done in connection with the certification of one of Finger Lakes Nicola plants.

Lynn was confused because she had also received a call from Corning Hospitality congratulating her for the excellent work Syracuse Law had performed for them. Management at Corning was happy not only for the quality of the service received but also for the fair price that they were charged.

Syracuse Law has full capacity utilization and uses a cost-plus model of pricing engagements. Currently it uses a simple costing system with a single direct cost category (lawyer hours) and a single overhead pool (general overhead). Overhead costs are allocated to case on the basis of lawyer hours per case.

The job sheets of the two abovementioned projects are as follows:

                         Finger Lakes Nikola.           Corning Hospitality

Lawyer hours.         156 hours                            144 hours

Total overhead for the most recent period was $31,500. Lawyer costs at Syracuse Law are $105 an hour.

Problem 1. Why is important for Syracuse Law to understand the costs associated with individual jobs?

Problem 2. Compute the costs of the Finger Lakes Nikola and the Corning Hospitality projects using a single overhead allocation rate.