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A consulting firm has two departments, Corporate and Government. Computer support is common to both departments....

A consulting firm has two departments, Corporate and Government. Computer support is common to both departments. The cost of computer support is $11.49 million. The following information is given:

Gigabytes of Storage Number of Consultants

Corporate 96,600 125

Government 63,600 165

Required: What is the cost allocation if fixed computer costs of $6.40 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?

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Answer #1

Fixed costs = $6.40 million

Variable costs = 11.49-6.40 = $5.09 million

Cost allocation of fixed costs:

Fixed costs will be allocated on basis of number of consultants

Corporate = 6.40/125+165*125 = $2.76 million

Government = 6.40/125+165*165 =$3.64 million

Variable costs will be allocated on the basis of number of gigabytes of storage used

Corporate = 5.09/96600+63600*96600 = $3.07 million

Government = 5.09/96600+63600*63600 = $2.02 million

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