Gipps Business College (GBC) has two degree programs, undergraduate (UG) and graduate (GRAD) and three service departments, information technology (IT), Event Planning (EP), and Career Services (CS). The CFO of GBC is conducting a profitability analysis of the two programs and wants to include the appropriate costs of the service departments in the costs of the two degree programs. As a part of the analysis, the CFO has collected the following usage patterns of the ser vice departments over the last two years. Using Departments Suppying Department IT EP CS UG GRAD IT 0 10% 20% 40% 30% EP 0 0 25% 25% 50% CS 0 0 0 60% 40% Direct Costs $ 70,000.00 $ 90,000.00 $ 100,000.00 To be determined Required:- a.) The CFO is unsure what the best way to allocate the cost is and has asked you for the allocations to the UG and GRAD programs using: The direct method; The step method starting with IT, followed by EP, and then CS; The reciprocal method. (You do not need matrix algebra or to read the Appendix to com plete this requirement.)
Gipps Business College (GBC) has two degree programs, undergraduate (UG) and graduate (GRAD) and three service departments, information technology (IT), Event Planning (EP), and Career Services (CS). The CFO of GBC is conducting a profitability analysis of the two programs and wants to include the appropriate costs of the service departments in the costs of the two degree programs. As a part of the analysis, the CFO has collected the following usage patterns of the ser vice departments over the last two years.
|
|
Using Departments |
||||
|
Suppying Department |
IT |
EP |
CS |
UG |
GRAD |
|
IT |
0 |
10% |
20% |
40% |
30% |
|
EP |
0 |
0 |
25% |
25% |
50% |
|
CS |
0 |
0 |
0 |
60% |
40% |
|
Direct Costs |
$ 70,000.00 |
$ 90,000.00 |
$ 100,000.00 |
To be determined |
Required:-
a.) The CFO is unsure what the best way to allocate the cost is and has asked you for the allocations to the UG and GRAD programs using:
- The direct method;
- The step method starting with IT, followed by EP, and then CS;
- The reciprocal method. (You do not need matrix algebra or to read the Appendix to com plete this requirement.)
b.) Write a short memo to the CFO with a recommendation on the method that should be used.
Assume that this usage pattern is expected to remain roughly constant over time.
c.) Allocate the costs using the step method starting with CS, followed by EP and then IT.
- Compare the results in requirement (a)(2) and (c). If the CFO decides to use the step method (perhaps ignoring your recommendation in requirement (b)), what sequence would you rec ommend the CFO follow in allocating costs: the sequence in requirement (a)(2) or in require ment (c)? Explain.
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