ss Cranshaw Business Services (CBS) operates an information technology (IT) consulting firm out of two offices: Detroit andLos Angeles. Corporate services, such as legal, finance, and personnel, are centralized at the main office and the costs ofthese services are allocated to the two offices for the purposes of profitability assessment. The Detroit office is the originalunit of the company and is well established, having long-time clients from the automotive and other manufacturingindustries. The Los Angeles office is new with a smaller, much more varied, clientele. The costs of personnel services atCBS are currently allocated on the basis of the number of employees in each office. The annual costs of the personneldepartment total $470,000. Data for the fiscal year just ended show the following:Number of employeesNumber of new hiresNumber of employees departingDetroit Los Angeles356144720310Exercise 9-31 (Algo) Unitwide versus Department Allocation-Administrative (Service) Function (LO 9-2,3)Required:a. Compute the cost allocated to each unit using the current allocation system.b. The manager of the Detroit office believes that Detroit gets little benefit from the personnel office other than the occasional hireand termination help. The manager asks the controller's office to estimate the amount of Personnel Department cost associatedwith routine personnel matters (benefits and so on) and those associated with hiring employees and assisting with departingemployees (transitions). The controller responds that if they separated the overhead costs on this basis, the cost of the PersonnelDepartment for routine matters is $248,000 and the cost of the Personnel Department for transitions (each hire and each departurecounts as one transition) is $222,000.Recompute the costs allocated to each unit using the separate rates for routine and transitional matters.a. Using current allocation systemb. Using separate ratesTotal Allocated CostDetroitLos Angeles

Allocated costs in accounting refer to the process of assigning or apportioning indirect costs to…

Cranshaw Business Services (CBS) operates an information technology (IT) consulting firm out of two offices: Detroit and Los Angeles. Corporate services, such as legal, finance, and personnel, are centralized at the main office and the costs of these services are allocated to the two offices for the purposes of profitability assessment. The Detroit office is the original unit of the company and is well established, having long-time clients from the automotive and other manufacturing industries. The Los Angeles office is new with a smaller, much more varied, clientele. The costs of personnel services at CBS are currently allocated on the basis of the number of employees in each office. The annual costs of the personnel department total $470,000. Data for the fiscal year just ended show the following: Number of employees Number of new hires. Number of employees departing Detroit Los Angeles 356 144 20 10 7 3 Exercise 9-31 (Algo) Unitwide versus Department Allocation-Administrative (Service) Function (LO 9-2, 3) a. Using current allocation system b. Using separate rates Required: a. Compute the cost allocated to each unit using the current allocation system. b. The manager of Detroit office believes that Detroit gets little benefit from the personnel office other than the occasional hire and termination help. The manager asks the controller's office to estimate the amount of Personnel Department cost associated with routine personnel matters (benefits and so on) and those associated with hiring employees and assisting with departing employees (transitions). The controller responds that if they separated the overhead costs on this basis, the cost of the Personnel Department for routine matters is $248,000 and the cost of the Personnel Department for transitions (each hire and each departure counts as one transition) is $222,000. Recompute the costs allocated to each unit using the separate rates for routine and transitional matters. Total Allocated Cost Detroit Los Angeles