(Transfer prices) Green & Marshand LLC has three revenue departments: liti¬ gation (Lit.), family practice (FP), and legal consulting (LC). In addition, the company has two support departments, administration and EDP. Administra¬ tion costs are allocated to the three revenue departments on the basis of number of employees. EDP’s fixed costs are allocated to revenue depart¬ ments on the basis of peak hours of monthly service expected to be used by each revenue department. EDP’s variable costs are assigned to the revenue departments at a transfer price of $40 per hour of actual service. Following are the direct costs and the allocation bases associated with each of the departments:

a. Was the variable EDP transfer price of $40 adequate? Explain.

b. Allocate all service department costs to the revenue-producing depart¬ ments using the direct method.

c. What are the total costs of the revenue-producing departments after the allocation in part (b)? LO.1

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ALLOCATION BASES: NUMBER OF Administration Direct Costs (before transfer Peak EDP costs) Employees Hours Hours Used $450,000 EDP-Fixed 300,000 EDP Variable 90,000 Lit. 200,000 10 FP 255,000 LC 340,000 422053 30 290 n/a n/a n/a n/a 80 1,220 240 650 25 190