Chapter 12, Problem 35E

Single versus Dual Rates: Ethical Considerations

A consulting firm has two departments, Corporate and Government. Computer support is common to both departments. The cost of computer support is $9 million. The following information is given:

Required

1. a.      What is the cost charged to each department if the allocation is based on the number of gigabytes of storage?
2. b.      What is the cost charged to each department if number of consultants is the allocation basis?
3. c.       Most of the business in the Corporate Department is priced on a fixed fee basis, and most of the work in the Government Department is priced on a cost-plus fixed fee basis. Will this affect the choice of the allocation base? Should it?