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Cost allocation

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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?

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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

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Common Cost Allocation at Wal-Mart

Retrieve any report in Wal-Mart that allocates common costs to a division, product, or service. Recast that report with unallocated costs and comment on the usefulness of that revised report.

If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.

If you are unable to identify any report with allocated costs, create a report that you think may apply to your organization and treat the data as if it were factual.

Your report should include:

The name and nature of the organization
The activity and time period you used
The inputs you used
Your results
Any implications from your results

Be sure you do the recasting of the report - this means a numerical table must be prepared with your report.

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