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Allocation of IT Costs and ABC Costing

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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.

(Answers to questions and references provided in detail in paper).

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

IT allocation is a process by which companies categorically distribute a determined amount of dollars across the corporation to cover all costs associated with or assumed to be related to the IT department. The theory goes that since everyone uses IT at such high intervals, it is near impossible to have complete granularity across an organization. Therefore, financial assumptions are predetermined based on historical usage and on management oversight of the IT department and an allocated budget is created.

There is much scrutiny from all levels of the corporate ladder on just how much allocation of IT costs are captured accurately. That being the case, I agree with the allocation of costs in the majority of situations.

I agree with allocation because I believe it offers the fairest approach at a distributed cost model that allows for a baseline on which to budget and plan year over year. When using an allocation model one has the ability to manage ...

Solution Summary

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.

(Answers to questions and references provided in detail in APA Format).

$2.19
See Also This Related BrainMass Solution

Job costing for toy trucks; overhead allocation; ABC for Honey Lake Summer Camp

Please see the attached file.

1) The job cost sheet for 1,000 units of toy trucks is:

Job Number 555 Date Started 4/13
Date Completed 6/18

Raw Materials Direct Labor
Date Type Cost Qty. Amount Cost Hours Amount
4/13 565 $ 3 1,000 $3,000 $18 20 $ 360
5/24 889 1 4,000 4,000 12 10 120
6/18 248 2 1,000 2,000 15 100 1,500
$9,000 130 $1,980

Total direct materials $9,000
Total direct labor 1,980
Overhead (130 direct labor hours @ $10/hour) 1,300
Total Job Cost $12,280

All of the materials for the job were purchased on 4/10. The batch of 1,000 toy trucks is sold on 7/10.

a) What are the costs of this job order in the raw materials account, on 4/30, 5/31, 6/30 and 7/31?

a. $5,000, $3,000, $0, and $0
b. $4,000, $2,000, $0 and $0
c. $6,000, $2,000, $0 and $0
d. $6,000, $3000, $1,000, and $1,000

b) what are the costs of this job order in the work-in-process account, on 4/30, 5/31, 6/30 and 7/31?

a. $3,560, $7,780, $0, and $0
b. $4,580, $6,780, $0 and $0
c. $3,560, $6,780, $0 and $0
d. $2, 560, $7,780, $0 and $0

2) The Alphonse Company allocates fixed overhead costs by machine hours and variable overhead costs by direct labor hours. At the beginning of the year the company expects fixed overhead costs to be $600,000 and variable costs to be $800,000. The expected machine hours are 6,000 and the expected direct labor hours are 80,000. The actual fixed overhead costs are $700,000 and the actual variable overhead costs are $750,000. The actual machine hours during the year are 5,500 and the actual direct labor hours are 90,000.

a) How much overhead is allocated?

a. $1,500,000
b. $1,450,000
c. $1,400,000
d. $1,350,000

b) what is the over/underabsorbed overhead?

a. $2,000
b. $0
c. $5,000
d. $1,000

3). For many years the Honey Lake Summer Camp had used the number of campers per week to estimate weekly costs. The summer camp is open for ten weeks during the summer with a different number of campers each week. July is busiest with June and the end of August least busy. Costs from the last week of summer camp in 1998 are used to estimate costs for 1999 for pricing purposes. The following costs occurred during the last week of 1998 and the costs of each cost category are expected to be the same for 1999:

Weekly Cost
Supervisor's salary $ 400
Cook's salary 300
Camp counselor salaries (1 for each occupied cabin, each of
which hold 10 campers) (5 counselors × $200/counselor) 1,000
Food (50 campers × $100/camper) 5,000
Supplies (50 campers × $20/camper) 1,000
Utilities (50 campers × $10/camper) 500
Insurance (50 campers × $20/camper) 1,000
Property tax ($10,000/10 weeks) 1,000
Weekly total $10,200

Cost per camper: $10,200/50 campers = $204/camper

The Honey Lake Summer Camp expects 75 campers during the second week of July.

a) what is the expected cost of that week using the average cost?

a. $15,300
b. $16,000
c. $14,500
d. $16,300

b) what is the expected cost of that week using ABC?

a. $16,550
b. $14,550
c. $15,600
d. $16,800

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