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Allocation of variable costs

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A CPA firm has three divisions: Audit, Tax, and Business Consulting. When the specifications for the new computer system were established, the audit division needed 50% of the capacity, the tax division required 30%, and business consulting required 20%. The managers agreed that the fixed costs of the computer department would be allocated based on these percentages. The variable costs of the computer department are allocated based on the minutes of computer time that each department uses. The computer department budget for fixed costs is $650,000, and the budget for variable costs is $147,000. The company anticipates using 420,000 minutes of computer time.

What amount of variable costs will be allocated when a division uses a minute of computer time?

A. $0.47
B. $2.86
C. $1.55
D. $0.35

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The solution explains how to allocate variable costs.

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