Question

A consulting firm has two departments, Corporate and Government. Computer support is common to both departments. The cost of computer support is $12.45 million. The following information is given: Gigabytes of Storage Number of Consultants Corporate 104,300 125 Government 60,400 175 Required: What is the cost allocation if fixed computer costs of $9.95 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? (Round your answers to the nearest whole dollars. Enter your answers in dollars, not in millions. Do not round intermediate calculations.)

Answer 1

Total cost for Corporate = $5,729,015

Total cost for Government = $6,720,985

Step-by-step explanation:

The computation of Fixed and Variable of corporate and government is given below:-

Fixed cost allocated for Corporate = Fixed computer costs × Number of consultant of Corporate ÷ Total number of consultant

= $9,950,000 × 125 ÷ (125 + 175)

= $9,950,000 × 125 ÷ 300

= $4,145,833

Fixed cost allocated for Government = Fixed computer costs × Number of consultant of Government ÷ Total number of consultant

= $9,950,000 × 175 ÷ (125 + 175)

= $9,950,000 × 175 ÷ 300

= $5,804,167

Variable cost = Total cost - Fixed cost

= $12,450,000 - $9,950,000

= $2,500,000

Variable cost allocated for Corporate = Variable cost × Gigabytes of Storage for Corporate ÷ Total Number of Gigabytes of Storage

= $2,500,000 × 104,300 ÷ (104,300 + 60,400)

= $2,500,000 × 104,300 ÷ 164,700

= $1,583,182

Variable cost allocated for Government = Variable cost × Gigabytes of Storage for Government ÷ Total Number of Gigabytes of Storage

= $2,500,000 × 60,400 ÷ (104,300 + 60,400)

= $2,500,000 × 60,400 ÷ 164,700

= $916,818

Total cost for Corporate = $4,145,833 + $1,583,182

= $5,729,015

Total cost for Government = $5,804,167 + $916,818

= $6,720,985