Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 38

Departmental Cost Allocation Ravenscraft Corporation prepares business plans and marketing analyses for start-up companies in the Boston area. Ravenscraft has been very successful in recent years in providing effective service to a growing number of clients. The company provides its service from a single office building in Boston and is organized into two main client-service groups: one for market research and the other for financial analysis. The two groups are treated as cost centers with budgeted annual costs of $1,000,000 and $1,500,000, respectively. In addition, Ravenscraft has a support staff that is organized into two main functions; one for clerical, facilities, and logistical support (called the CFL group) and another for computer-related support. The CFL group is also a cost center with budgeted annual costs of $450,000, while the annual cost of the computer group is $750,000.
Tom Miggs, CFO of Ravenscraft, plans to prepare a departmental cost allocation for his four groups, and he assembles the following information:
Percentage of estimated dollars of work and time by CFL:

Percentage of estimated dollars of work and time by the computer group:

Required Use 4 decimal places (e.g., 33.3333%) in your calculations. Determine the total cost in the financial analysis and market research groups, after departmental allocation, using (a) the direct method, (b) the step method, and (c) the reciprocal method.