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Overhead Cost Calculation for an Individual Lawyer

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 for 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 him 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. The actual overhead was $210,000.

What does the lawyer earn during the year after expenses? Please explain.

Solution Preview

1,200 hours billable to clients x $50 per hour = $60,000 in attorney fees (Income)

2,000 - 1,200 = 800 hours on a contingency basis

$300,000 in settlements / .50 = $150,000 income ...

Solution Summary

This solution calculates the amount that the lawyer earns during the year after expenses. All calculations and explanations are provided. Includes 1 reference.