Question

Biotechtron, Inc., has two research laboratories in the Southwest, one in Yuma, Arizona, and the other in Bernalillo, New Mexico. The owner of Biotechtron centralized the legal services function in the Yuma office and had both laboratories send any legal questions or issues to the Yuma office. The legal services support center has budgeted fixed costs of $160,000 per year and a budgeted variable rate of $65 per hour of professional time. The normal usage of the legal services center is 2,600 hours per year for the Yuma office and 1,400 hours per year for the Bernalillo office. This corresponds to the expected usage for the coming year.

Required:
1. Determine the amount of legal services support center costs that should be assigned to each office.

Answer 1

The Yuma office should be assigned $325,373 of the legal services support center costs, while the Bernalillo office should be assigned $235,627.

Step-by-step explanation:

To determine the amount of legal services support center costs that should be assigned to each office, we need to calculate the fixed and variable costs for each office based on their expected usage.

For the Yuma office:

Fixed costs = $160,000

Variable costs = $65 per hour x 2,600 hours = $169,000

Total costs = $160,000 + $169,000 = $329,000

Amount assigned to Yuma office = ($329,000 / ($329,000 + $20,000)) x $329,000 = $325,373

For the Bernalillo office:

Fixed costs = $160,000

Variable costs = $65 per hour x 1,400 hours = $91,000

Total costs = $160,000 + $91,000 = $251,000

Amount assigned to Bernalillo office = ($251,000 / ($329,000 + $20,000)) x $329,000 = $235,627