Cost Allocation Methods at IBM

• Values:

• Direct Costs: $500,000
• Indirect Costs: $300,000
• Allocation Bases: Direct Labor Hours, Square Footage
• Requirements:

0. Allocate indirect costs using direct labor hours as the allocation base.
1. Allocate indirect costs using square footage as the allocation base.
2. Compare and contrast the results of the two allocation methods.
3. Discuss the challenges in choosing an appropriate cost allocation method for IBM.