Single versus Dual Rates
Using the data for the consulting firm in Exercise 12 23, what is the cost allocation if fixed computer costs of $4 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?
Exercise 12 23: Single versus Dual Rates: Ethical Considerations
A consulting firm has two departments, Corporate and Government. Computer support is common to both departments. The cost of computer support is $6 million. The following information is given:
|
|
Gigabytes of Storage |
Number of Consultants |
|
Corporate |
75,000 |
150 |
|
Government |
50,000 |
69 |
Required
a. What is the cost charged to each department if the allocation is based on the number of gigabytes of storage?
b. What is the cost charged to each department if number of consultants is the allocation basis?
c. Most of the business in the Corporate Department is priced on a fixed fee basis, and most of the work in the Government Department is priced on a cost plus fixed fee basis. Will this affect the choice of the allocation base? Should it?