Exercise 12-39 (Algo) Alternative Allocation Bases-Ethical Considerations (LO 12-5) Kentfield Advisory Services (KAS) is a large management consulting firm organized into two groups: Governmental Services (GS) and Commercial Support (CS). Corporate information technology (IT) services support both groups. The cost of computer support is $49 million. The following information is given: Governmental Services Commercial Support Utilization 41% 59 Revenues ($000) $ 244,240 443,760 Required: a. What is the cost charged to each group if the allocation is based on the utilization? b. What is the cost charged to each group if revenue is the allocation basis? c. Most of the business in Commercial Support is priced on a fixed fee basis, and most of the work in the Governmental Services Department is priced on a cost-plus fixed fee basis. Will the allocation base selected affect the amount of revenue?

Exercise 12-39 (Algo) Alternative Allocation Bases-Ethical Considerations (LO 12-5) Kentfield Advisory Services (KAS) is a large management consulting firm organized into two groups: Governmental Services (GS) and Commercial Support (CS). Corporate information technology (IT) services support both groups. The cost of computer support is $49 million. The following information is given: Governmental Services Commercial Support Utilization 41% 59 Revenues ($000) $ 244,240 443,760 Required: a. What is the cost charged to each group if the allocation is based on the utilization? b. What is the cost charged to each group if revenue is the allocation basis? c. Most of the business in Commercial Support is priced on a fixed fee basis, and most of the work in the Governmental Services Department is priced on a cost-plus fixed fee basis. Will the allocation base selected affect the amount of revenue?

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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Allocation of Central Costs; Profit Centers Woodland Hotels Inc. operates four resorts in theheavily wooded areas of northern California. The resorts are named after the predominant trees at theresort: Pine Valley, Oak Glen, Mimosa, and Birch Glen. Woodland allocates its central office coststo each of the four resorts according to the annual revenue the resort generates. For the current year,the central office costs (000s omitted) were as follows:[LO 18-3]Front office personnel (desk, clerks, etc.) $ 8,000Administrative and executive salaries 4,000Interest on resort purchase 3,000Advertising 600Housekeeping 2,000Depreciation on reservations computer 80Room maintenance 800Carpet-cleaning contract 50Contract to repaint rooms 400$18,930Pine Valley Oak Glen Mimosa Birch Glen TotalRevenue (000s) $ 5,350 $ 7,995 $ 8,857 $ 6,550 $ 28,752Square feet 55,475 76,599 41,774 83,664 257,512Rooms 86 122 66 174 448Assets (000s) $92,345 $136,745 $72,355 $57,499 $358,944Required1. Based on annual…
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