Biotechtron, Inc., has two research laboratories in the Midwest, one in Tulsa, Oklahoma, and one in Ames, Iowa. The owner of Biotechtron centralized the legal services function in the Tulsa office and had both laboratories send any legal questions or issues to the Tulsa office. The legal services support center has budgeted fixed costs of

$60,000 per year and a budgeted variable rate of $40 per hour of professional time.

The normal usage of the legal services center is 1,625 hours per year for the Tulsa office and 875 hours per year for the Ames office. This corresponds to the expected usage for the coming year.

Required:

1. Determine the amount of legal services support center costs that should be assigned to each office.

2. Since the offices produce services, not tangible products, what purpose is served by allocating the budgeted costs?

3. Now, assume that during the year, the legal services center incurred actual fixed costs of $59,000 and actual variable costs of $91,500. It delivered 2,300 hours of professional time—1,200 hours to Tulsa and 1,100 hours to Ames. Determine the amount of the legal services center’s costs that should be allocated to each office. Explain the purposes of this allocation.

4. Did the costs allocated differ from the costs incurred by the legal services center?
If so, why?