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 $550,000. Data for the fiscal year just ended show the following:Number of employeesNumber of new hiresNumber of employees departingAllocation based onEmployeesTransitionsDetroit340Variable Cost$ 120,000120,00091Los Angeles160Exercise 9-32 (Algo) Unitwide versus Department Allocation-Decision Making (LO 9-1, 2, 3)The manager of the Los Angeles office is now unhappy with the results of the controller's study. The manager asks the controller todevelop separate rates for fixed and variable costs in the Personnel Department. The controller reports back to the Los Angelesmanager that the costs would be as follows:2010Fixed Cost$ 160,000150,000Total Cost$ 280,000270,000Required:a. The manager claims that the Los Angeles office should only be allocated the variable costs from this system, because the companywould have to pay the fixed costs even if the Los Angeles office did not exist. Compute the cost allocated to each unit using theapproach the Los Angeles manager prefers.

Fixed cost is the cost that does not change with the change in the level of output, the total fixed…

Answered: Cranshaw Business Services (CBS)…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Kelly-Elias Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit center. Each division manager has been delegated full authority on all decisions involving the sale of that division’s output both to outsiders and to other divisions of Kelly-Elias. Division C has in the past always purchased its requirement of a particular tractor-engine component from division A. However, when informed that division A is increasing its selling price to $135, division C’s manager decides to purchase the engine component from external suppliers. Division C can purchase the component for $115 per unit in the open market. Division A insists that, because of the recent installation of some highly specialized equipment and the resulting high depreciation charges, it will not be able to earn an adequate return on its investment unless it raises its price. Division A’s manager…
Required information [The following information applies to the questions displayed below.] 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 $510,000. Data for the fiscal year just ended show the following: Number of employees Number of new hires. Number of employees departing Allocation based on…
The Kelly-Elias Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit center. Each division manager has been delegated full authority on all decisions involving the sale of that division’s output both to outsiders and to other divisions of Kelly-Elias. Division C has in the past always purchased its requirement of a particular tractor-engine component from division A. However, when informed that division A is increasing its selling price to $135, division C’s manager decides to purchase the engine component from external suppliers. Division C can purchase the component for $115 per unit in the open market. Division A insists that, because of the recent installation of some highly specialized equipment and the resulting high depreciation charges, it will not be able to earn an adequate return on its investment unless it raises its price. Division A’s manager…
! Required information [The following information applies to the questions displayed below.] 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 $440,000. Data for the fiscal year just ended show the following: Number of employees Number of new hires Number of employees departing a. Using current…
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