Response to the following problem:
Computer Information Services is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Carol Birch, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. Birch assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department.
Service Department User Department
System Facilities Computer Programming Consulting Training Total
Budgeted Overhead $50,000 $25,000 $75,000 $110,000 $85,000 $345,000
Info systems (hours) 400 1,100 600 900 3,000
Facilities (thousand sq. ft.) 200 400 600 800 2,000
Allocated on the basis of hours of computer usage.
Allocated on the basis of floor space.
Required:
Allocate the service department costs to the user departments using the step method.