NS offers telecommunications design and consulting services to organizations. The firm offers two types of contracts to its clients: a cost-plus 25% contract where NS is paid based on adding a 25% margin on top of its costs and a fixed-fee contract where NS charges a fixed price. For cost-plus contracts, "cost" is determined by direct and indirect overhead costs added together. NS completed 10 cost-plus contracts at a total direct cost of $500,000 and 12 fixed-fee contracts. The total direct cost of the fixed-fee contracts amounted to $1,700,000. NS is considering using either a pre-determined overhead rate of $.15 of direct cost $ to allocate its estimated total overhead costs of $330,000 during the year to the contracts or using a pre-determined overhead rate of $15,000 per contract to allocate these estimated total overhead costs.

Calculate how much NS will allocate in overhead costs to: 1) the fixed-fee contracts and 2) the cost-plus contracts under each method

	Cost-Plus Contracts	Fixed-Fee Contracts
Using overhead rate of $.15 of direct cost $
Using overhead rate of $15,000 per contract

3 Holding revenue constant, how does the choice of allocation base affect how profitable NS will view the 2 types of contracts? If the company's cost-plus contract customers are able to bear more costs (i.e., they are not as price-sensitive as fixed-fee customers), could this affect the choice of allocation base? Explain your answer in 1-3 sentences.