A consulting firm has two departments, Corporate and Government. Computer suppor

Question

A consulting firm has two departments, Corporate and Government. Computer support is common to both departments. The cost of computer support is $13.11 million. The following information is given:

Required:

What is the cost allocation if fixed computer costs of $9.90 million are allocated on the basis of number of consultants and the remaining costs (all variable) are allocated on the basis of the number of gigabytes of storage used by the department? (Do not round intermediate calculations. Enter your answers in thousands of dollars.)

Gigabytes of Storage Number of Consultants Corporate 92,200 135 Government 64,000 160

Explanation / Answer

Answer:

Allocation of Cost of Computer Support – Fixed Cost:
Cost allocated to Corporate Department = $9,900,000 * 135 / (135 + 160)
Cost allocated to Corporate Department = $9,900,000 * 135 / 295
Cost allocated to Corporate Department = $4,530,508

Cost allocated to Government Department = $9,900,000 * 160 / (135 + 160)
Cost allocated to Government Department = $9,900,000 * 160 / 295
Cost allocated to Government Department = $5,369,492

Total Cost of Computer Support = $13,110,000
Total Fixed Computer Cost = $9,900,000
Total Variable Computer Cost = $13,110,000 - $9,900,000
Total Variable Computer Cost = $3,210,000

Allocation of Variable Cost of Computer Support:
Cost allocated to Corporate Department = $3,210,000 * 92,200 / (92,200 + 64,000)
Cost allocated to Corporate Department = $3,210,00 * 92,200 / 156,200
Cost allocated to Corporate Department = $1,894,763

Cost allocated to Government Department = $3,210,000 * 64,000 / (92,200 + 64,000)
Cost allocated to Government Department = $3,210,00 * 64,000 / 156,200
Cost allocated to Government Department = $1,315,237

Corporate

Government

Fixed

4,530,508

5,369,492

Variable

1,894,763

1,315,237

Total

6,425,272

6,684,728

Corporate

Government

Fixed

4,530,508

5,369,492

Variable

1,894,763

1,315,237

Total

6,425,272

6,684,728

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