Purchase Solution

Allocation of Fixed IT Costs

Not what you're looking for?

Ask Custom Question

Cost Reallocation

The links below lead you to the required background readings for the assignment.

First read the article below:

How to Create a System for Charging Back IT Services.
http://www.cio.co.uk/article/3217465/how-to-create-a-system-for-charging-back-it-services/?intcmp=HPF3

Next read comments about the above reference article.

ABC Costing is the Best Allocation Methodology.
http://leanit.apptio.com/tag/activity-based-costing/

Required:

You are required to read the above articles and to discuss the various issues of cost allocation in a 2 to 4 page paper by addressing the issues below:

1. Describe the process of allocation of IT costs. Do you agree with the approach? Why or why not?

2. What is the purpose of the allocation?

3. What are the benefits of the allocation?

4. Compare and contrast ABC Costing and Lean Manufacturing.

How is the decision making in this organization affected by the manner in which costs are allocated? Provide numerical support as needed.

Purchase this Solution
Solution Summary

Response is 704 words (about two and a half pages) and gives you a draft to start on this project. The two views of allocation are discussed along with pros and cons of each. The criteria for when each might be superior is mentioned.

Solution Preview

DRAFT (please re-write in your words and add your own thoughts as OTAs may not write assignments for students).

--------------------------------------------

Introduction

The allocation of costs is an important issue and these two articles present two different views about how to do it. One approach considers the entire process of allocating to be a confusing burden (merry-go round). The other finds the effort to allocate costs the solving of a mystery that reveals the truth about the consumption of resources.

Purpose and Benefits of Allocating

The purpose of allocating is to understand your costs and therefore allocate time and capital wisely and price services at above cost. When done with care, allocations benefit firms by indicating who is using the resources and having those users absorb the cost of the consumed resources in their operations. By allocating, decision-makers get a true view of which divisions, products and activities are causing costs to occur and therefore they can price to cover the costs or competitively bid to get those activities done outside the firm for better prices. In a way, allocations are a magnifying glass permitting ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
Recent Feedback
  • "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
  • "Thank, this is more clear to me now."
  • "Awesome job! "
  • "ty"
  • "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Basics of corporate finance

These questions will test you on your knowledge of finance.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Motivation

This tests some key elements of major motivation theories.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

View More Free Quizzes
Related BrainMass Solutions

  • Unitizing fixed costs for the allocation process

    In such situations, lump sum allocation of fixed costs can avoid such poor decision making. Hence, we should not charge fixed overheads on a unit by unit basis as it will make fixed costs appear variable.

  • Cost allocation

    costs, non-shared fixed costs, and shared fixed costs and potentially allocation ideas for each of these.

  • Process of allocation of IT costs: lean or abc

    363955 Allocation of Fixed Costs Based on the articles attached... Describe the process of allocation of IT costs. Do you agree with the approach? Why or why not? What is the purpose of the allocation?

  • Dual Rate Cost Allocation

    Prince Allocation of Cost using both a variable and a fixed rate of allocation.

  • Cost allocation

    In terms of cost allocation principles, the fixed cost should be allocated based on peak requirements. This is because the peak requirement determine the capacity to built and that determines the fixed costs.

  • Allocation Bases to each Division

    The allocation basis is the number of reservations. For the domestic division it is = 1,500 * 15 = 22,500. For the international division it is = 2,000*15 or 30,000.

  • Direct and step-down methods with dual rates (Petro-X)

    The bases for allocation are as follows: Physical plant: Fixed costs on the basis of square feet occupied Variable costs on the basis of number of employees Equipment maintenance Fixed costs on the basis of budgeted machine

  • Departmental allocation of computer costs

    347496 School departmental allocation of computer costs: budgeted and actual Budget formula = $100,000 fixed costs monthly + $200 per hour of computer time used.

  • Income Statement for Full & Variable Costing

    Calculate the amount of fixed manufacturing overhead that will be included in ending inventory under full costing and reconcile it to the difference between income computed under variable full costing. 2- Allocating Services Department Costs World

  • Allocation of Automobile Costs

    The average fixed cost is same for each auto so it is necessary to allocate the fixed cost on the basis of number of autos rather than miles driven. It is the reason that chief planner of city is concerned about her auto costs. 2.

View More Related Solutions