Wigan Associates is a recently formed law partnership. Ellery Hanley, the managing partner of Wigan Associates, has just finished a tense phone call with Martin Offiah, president of Widnes Coal. Offiah complained about the price Wigan charged for some legal work done for Widnes Coal. Hanley also received a phone call from its only other client (St. Helen s Glass), who said it was very pleased with both the quality of the work and the price charged on its most recent case. Wigan Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a single direct-cost category (for professional labour hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labour-hours per case. The case files show the following: Professional labour costs at Wigan Associates are $70 an hour. Indirect costs are allocated to cases at $105 an hour. Total indirect costs in the most recent period were $21,000. REQUIRED 1. Why is it important for Wigan Associates to understand the costs associated with individual cases? 2. Compute the costs of the Widnes Coal and St. Helen s Glass cases using Wigan s simple costing system.
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