#6

Required information [The following informotion opplies to the questions disployed below.] Cranshaw Business Services (CBS) operotes an information technology (IT) consulting firm out of two offices: Detroit and Los Angeles. Corporate services, such as legol, finance, and personnel, are centralized at the main office and the costs of these services are allocated to the two offices for the purposes of profitobility assessment. The Detroit office is the original unit of the company and is well estoblished, hoving long-time clients from the outomotive and other manufocturing industries. The Los Angeles office is new with a smaller, much more varied, clientele. The costs of personnel services at CBS are currently allocated on the bosis of the number of employees in eoch office. The onnuol costs of the personnel department total $490,000. Doto for the fiscal yeor just ended show the following: Required: a. Compute the cost allocated to each unit using the current allocation system. b. The manager of the Detroit office believes that Detroit gets little benefit from the personnel office other than the occosional hire and termination help. The manager asks the controller's office to estimate the amount of Personnel Department cost associated with routine personnel matters (benefits and so on) and those associated with hiring employees and assisting with departing employees (transitions). The controller responds that if they seporated the overheod costs on this basis, the cost of the Personnel Deportment for routine matters is $256,000 and the cost of the Personnel Deportment for transitions (each hire and each departure counts as one tronsition) is $234,000. Recompute the costs allocated to eoch unit using the seporate rates for routine and transitional matters. The monuger clims thet the Los Angeles office should only be allocsted the vsrisble costs from this system, becsuse the compony would hove to poy the fixed costs even if the Los Angeles office did not exist. Compute the cost allocsted to each unit using the opprosch the Los Angeles monoger prefers