Required: a. The manager claims that the Los Angeles office should only be allocated the variable costs from this system, because the company would have to pay the fixed costs even if the Los Angeles office did not exist. Compute the cost allocated to each unit using the approach the Los Angeles manager prefers. Detriot Los Angeles Total Allocated Cost
Required: a. The manager claims that the Los Angeles office should only be allocated the variable costs from this system, because the company would have to pay the fixed costs even if the Los Angeles office did not exist. Compute the cost allocated to each unit using the approach the Los Angeles manager prefers. Detriot Los Angeles Total Allocated Cost
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ashvinbhai
![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 $520,000. Data for the fiscal year just ended show the following:
Detroit Los Angeles
Number of employees
346
154
Number of new hires
9
19
Number of employees departing
1
11
The manager of the Los Angeles office is now unhappy with the results of the controller's study. The manager asks the controller to
develop separate rates for fixed and variable costs in the Personnel Department. The controller reports back to the Los Angeles
manager that the costs would be as follows:
Allocation based on
Employees
Transitions
Variable Cost
$ 114,000
111,000
Fixed Cost
$ 154,000
141,000
Total Cost
$ 268,000
252,000
Required:
a. The manager claims that the Los Angeles office should only be allocated the variable costs from this system, because the company
would have to pay the fixed costs even if the Los Angeles office did not exist. Compute the cost allocated to each unit using the
approach the Los Angeles manager prefers.
Detriot
Los Angeles
Total Allocated Cost](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F05b4762b-57c0-4354-8749-f5516b1e41e1%2Ff73904f3-fe96-499a-a34e-1d1c69c5392c%2Ff1je0tv_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 $520,000. Data for the fiscal year just ended show the following:
Detroit Los Angeles
Number of employees
346
154
Number of new hires
9
19
Number of employees departing
1
11
The manager of the Los Angeles office is now unhappy with the results of the controller's study. The manager asks the controller to
develop separate rates for fixed and variable costs in the Personnel Department. The controller reports back to the Los Angeles
manager that the costs would be as follows:
Allocation based on
Employees
Transitions
Variable Cost
$ 114,000
111,000
Fixed Cost
$ 154,000
141,000
Total Cost
$ 268,000
252,000
Required:
a. The manager claims that the Los Angeles office should only be allocated the variable costs from this system, because the company
would have to pay the fixed costs even if the Los Angeles office did not exist. Compute the cost allocated to each unit using the
approach the Los Angeles manager prefers.
Detriot
Los Angeles
Total Allocated Cost
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