Cost Allocation Methods at IBM

• Values:

• Direct Costs: $10,000,000
• Indirect Costs: $5,000,000
• Allocation Bases: Number of Departments, Square Footage
• Requirements:

0. Allocate indirect costs using the number of departments as the allocation base for IBM.
1. Allocate indirect costs using square footage as the allocation base for IBM.
2. Compare and contrast the results of the two cost allocation methods.
3. Discuss the importance of cost allocation in performance evaluation and decision-making at IBM.