Germinal et Associés provides tax advice to multinational firms. Germinal charges clients for (a) direct professional time (at an hourly rate) and (b) support services (at 30% of the direct professional costs billed). The three professionals in Germinal and their rates per hour are:
Professional Billing rate per hour
Thérèse Raquin............€500
Jeanne Rozerot..............120
Claude Bernard...............80
Germinal has just prepared the May 2015 bills for two clients. The hours spent on each client are as follows:
Hours per client
Professional Fortune Plassans Au Bonheur des Dames
Raquin...................................15.....................................2
Rozerot....................................3.....................................8
Bernard......................................22....................................30
Total......................................40....................................40
Required
1. What amounts did Germinal bill to Fortune Plassans and Au Bonheur des Dames for May 2015?
2. Suppose support services were billed at €50 per labour-hour (instead of 30% of labour costs). How would this change affect the amounts Germinal billed to the two clients for May 2015? Comment on the differences between the amounts billed in requirements 1 and 2.
3. How would you determine whether labour costs or labour-hours is the more appropriate allocation base for Germinal's support services?