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Cost allocation

Lyres, Cheeterz, and Phools, attorneys-at-law, specialize in three areas: criminal, civil, and family law. When specifications for a new computer system were established, the criminal law division needed 60% of the capacity, civil law 25%, and family law 15%. The partners agreed that the fixed costs of the computer department would be allocated on these percentages. Variable costs for the computer department would be allocated on the number of computer minutes each division used. The computer department's budgeted fixed costs are $700,000, and the budgeted variable costs $150,000. The firm estimates that 400,000 minutes of computer time will be used next period. Note: Cost allocation rates are computed to 3 significant digits.

If the criminal law division actually uses 190,000 minutes of computer time, what is the total amount of computer department costs that will be allocated to the criminal law division?

Solution Preview

Total amount of computer department costs that will be allocated to the criminal law division:

=Variable costs +Fixed ...

Solution Summary

Response provides the steps for Cost allocation

$2.19