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Allocating the Costs of Shared Facilities

Cool Surfboards has two departments that both use a conference room (shared facilities). Total monthly conference room cost is $1,000. The Wave Blaster department has 15 employees that reserved 60 hours of conference room time. The Boogie Break department has 5 employees that reserved 100 hours of conference room time.

a) If Cool Surfboards allocates shared facilities cost based on hours of use, what is the amount of share facilities costs allocated to the Boogie Break department?

b) If Cool Surfboards allocates shared facilities cost based on hours of use, what is the amount of share facilities costs allocated to the Wave Blaster department?

c) If Cool Surfboards allocates shared facilities cost based on number of employees, what is the amount of share facilities costs allocated to the Boogie Break department?

d) If Cool Surfboards allocates shared facilities cost based on number of employees, what is the amount of share facilities costs allocated to the Wave Blaster department?

e) Which allocation method would be best for the Wave Blaster department?

Solution Preview

a) If Cool Surfboards allocates shared facilities cost based on hours of use, what is the amount of share facilities costs allocated to the Boogie Break department?

Wave Blaster hours of use 60
Boogie Break hours of use 100
Total hours of use 160 (60+100)
Boogie Break portion 62.5% (100/160)
Total cost $1,000
Cost allocated to Boogie Break $ 625 ($1,000*.625)

b) If Cool Surfboards allocates shared facilities cost based on hours of use, what is ...

Solution Summary

Given the costs of shared facilities and two bases of allocation, this solution illustrates how to compute the cost to each party under each allocation basis.

$2.19