Prepare an allocation of TESG costs using the following three alternative allocation methods and complete Table 1 (include calculations/working within write up) for each scenario. Also, for each scenario, evaluate whether the allocation method addresses the concerns, and provide behaviors that likely result from the allocation method.

Scenario A i. Develop a budgeted allocation rate using budgeted costs and budgeted usage. Use this budgeted rate to allocate costs to user groups based on actual usage. ii. Evaluate whether this allocation method addresses concerns about the current allocation method that you identified in Question 1. iii. What behaviors are likely to result from this allocation method?

QUESTIONS Exhibit 1 XYBERSPACE CONSULTING, INC. Prior to leaving for the lakeshore for the weekend, Barnes had collected data on the actual coxls incurred during the prior year hy the Training and Educational Services Group and summarized several statistics regarding actual training sessions attended by the Consulting and Customer Care Groups (see Exhibit 2). She was sure she would find this information helpful as she reflected in the issues. It seemed to Bames that there were key allocation questions involved in the controversy at Xyberspace. First of all, did the Training and Educational Services Group's use of a single rate cause its services to lock loc expensive at the Consulting and Customer Care Circuns? Would a dual rate, which seperated fixed from variable costs, better capture the true costs of the training? Second, should budgeted or actual rates be used to allocate training costs to the user groups? Finally, should the user groups he allocated training casts based on their hudgeted or actual usage of services? Just how should the costs of the Training and Educational Services Croup be allocated? Prior Year Training and Educational Services Group Budget Salaries: Rosenthal - Manager $ 75,000 Jones - Trainer 47,000 Chen - Trainer 48,000 Ivanc Trainer 55,000 Hickory - Assistant 25.000 Total Salaries $ 250,00 Bcncfits 50,000 Software Licenscs 20,000 Depreciation 28,000 Maintenance Contract 2.0X10 Course Development 12,500 Professional Development 10,000 Travel 8,810 Phone/Fax 2,600 Office Supplies 800 Training Supplies 67,500 Trainee Lunches 45,000 Other 300 Total 5497.700 600 Nutril: of Traing Resis: Consulting Group Customer Care Circus Total 2010 200 S553 Alloention rate per training session Budgeted allocation of Training Group costs to Consulting Group Customer Care Group $331,800 $ 163,900 Page 6 of 8 Page 7 of 8 Page 8 of 8 Exhibit 2 XYBERSPACE CONSULTING, INC. Prior Year Training and Educational Services Group Actual Expenses Salanes: Rosentbal - Manager $ 75,000 Jones - Trainer 50,000 Chen - Trainer 51,000 Ivan - Trainer 57,000 Hauscr - Assistant 32.000 Total Salarics $ 265,000 Benefits 57.00 Software Licenses 27,500 Depreciation 28,000 Maintenance Contract 2,000 Couse Development 12,500 Professional Development 22,500 Travel 12,000 Phone Fax 3,800 Office Supplies 800 Training Supplies 64,775 Trainee Lunches 56,250 Other 300 Total 548,625 Number of Training Sessions: Consulting Group Customer Care Group Total 610 225 825 Ss Allocation rate per training session Actual allocation of Training Group costs to: : Consulting Group Customer Care Group 5 399,000 5 149,625 Page 1 of 8 XYBERSPACE CONSULTING, INC. Laura Bares tinished her chicken fajita and looked out upon Town Lake, shimmering under the fierce Texas sun. She had recently relocated to Austin from Silicon Valley to head up the Accounting Departmeot for Xyberspace Consulting, Inc., a rapidly growing technology- consulting tim. Only two weeks in the job, she was being asked to resolve a controversy within the company. The controversy centered on the allocation of the costs associated with the company's Training and Educational Service Group to cach of the company's profit centers that used those services. Opinions on the issue were hented, and she had come to the lakesbore with her notes to calmly sort out the facts and consider the relevant issues. ller maniger and Xyberspacd's CFO, Martin Henry, had made it clear lic expected a quick resolution of the controversy, which be felt was burting company morale and had large strategic implications for Xyberspace BACKGROUND Xyberspace was a successful Internet consulting firm located in Austin, Texas. The company's Consulting Group provided c-strategy solutions to corporate and non-profit clients, while tbc Customer Care Group performed IT implementation and provided telephone, e-mail, anal con site client support. As Austin became home to an increasing number of Interet start-ups as well as established high-tech firms, Xylorspace had grown rapidly. The company employed 800 people, 500 of whom were consultants and 250 of wbom were Customer Care Technicians. The remaining 50 were either ccimurale ollicers or performed corporate functions such as accounting, marketing, training, and public relations. The company owned its own building in downtown Austin. Training was an integral part of the company's strategy, and Xyberspace was wholeheartedly committed to training and continuing education. According to Richard Malinovicli, the company's founder and CEO. "Our goal is to have absolutely the best-oducnted consultants in the marketplace. We think this will set us apart from many firms, who no doubt have bright people, but who don't invest anywhere near what we do in education. And I am absolutely convinced that training our consultants in-house is critical to achieving this goal." All employees of the Consulting and Customer Care Groups were required to receive cine full week of computer training twice a year on Internet-related languages such as html, xml, peel, and cgi. and Java as well as tutorials on software packages from Oracle, Vignette, Siebel, and other firm partners. The actual conteot of the classes depended on the newest software developmocots as well as the Consulting and Customer Care Groups' strategic focus areas. For example, the health care practice of the Consulting Group had recently received customized training in the latest hospital automation software. The Training and Educational Services Group spent much cffort and resources to design courses for its consultants built around Xyberspace's client oceds. Classes generally lasted one week and could cover a number of different topics. The normal class size was ten people, and three classes were typically going on at any one time. The Training and Educational Services Group had found that trainees generally preferred smaller class stres, Page 1 of 3 QUESTIONS Exhibit 1 XYBERSPACE CONSULTING, INC. Prior to leaving for the lakeshore for the weekend, Barnes had collected data on the actual coxls incurred during the prior year hy the Training and Educational Services Group and summarized several statistics regarding actual training sessions attended by the Consulting and Customer Care Groups (see Exhibit 2). She was sure she would find this information helpful as she reflected in the issues. It seemed to Bames that there were key allocation questions involved in the controversy at Xyberspace. First of all, did the Training and Educational Services Group's use of a single rate cause its services to lock loc expensive at the Consulting and Customer Care Circuns? Would a dual rate, which seperated fixed from variable costs, better capture the true costs of the training? Second, should budgeted or actual rates be used to allocate training costs to the user groups? Finally, should the user groups he allocated training casts based on their hudgeted or actual usage of services? Just how should the costs of the Training and Educational Services Croup be allocated? Prior Year Training and Educational Services Group Budget Salaries: Rosenthal - Manager $ 75,000 Jones - Trainer 47,000 Chen - Trainer 48,000 Ivanc Trainer 55,000 Hickory - Assistant 25.000 Total Salaries $ 250,00 Bcncfits 50,000 Software Licenscs 20,000 Depreciation 28,000 Maintenance Contract 2.0X10 Course Development 12,500 Professional Development 10,000 Travel 8,810 Phone/Fax 2,600 Office Supplies 800 Training Supplies 67,500 Trainee Lunches 45,000 Other 300 Total 5497.700 600 Nutril: of Traing Resis: Consulting Group Customer Care Circus Total 2010 200 S553 Alloention rate per training session Budgeted allocation of Training Group costs to Consulting Group Customer Care Group $331,800 $ 163,900 Page 6 of 8 Page 7 of 8 Page 8 of 8 Exhibit 2 XYBERSPACE CONSULTING, INC. Prior Year Training and Educational Services Group Actual Expenses Salanes: Rosentbal - Manager $ 75,000 Jones - Trainer 50,000 Chen - Trainer 51,000 Ivan - Trainer 57,000 Hauscr - Assistant 32.000 Total Salarics $ 265,000 Benefits 57.00 Software Licenses 27,500 Depreciation 28,000 Maintenance Contract 2,000 Couse Development 12,500 Professional Development 22,500 Travel 12,000 Phone Fax 3,800 Office Supplies 800 Training Supplies 64,775 Trainee Lunches 56,250 Other 300 Total 548,625 Number of Training Sessions: Consulting Group Customer Care Group Total 610 225 825 Ss Allocation rate per training session Actual allocation of Training Group costs to: : Consulting Group Customer Care Group 5 399,000 5 149,625 Page 1 of 8 XYBERSPACE CONSULTING, INC. Laura Bares tinished her chicken fajita and looked out upon Town Lake, shimmering under the fierce Texas sun. She had recently relocated to Austin from Silicon Valley to head up the Accounting Departmeot for Xyberspace Consulting, Inc., a rapidly growing technology- consulting tim. Only two weeks in the job, she was being asked to resolve a controversy within the company. The controversy centered on the allocation of the costs associated with the company's Training and Educational Service Group to cach of the company's profit centers that used those services. Opinions on the issue were hented, and she had come to the lakesbore with her notes to calmly sort out the facts and consider the relevant issues. ller maniger and Xyberspacd's CFO, Martin Henry, had made it clear lic expected a quick resolution of the controversy, which be felt was burting company morale and had large strategic implications for Xyberspace BACKGROUND Xyberspace was a successful Internet consulting firm located in Austin, Texas. The company's Consulting Group provided c-strategy solutions to corporate and non-profit clients, while tbc Customer Care Group performed IT implementation and provided telephone, e-mail, anal con site client support. As Austin became home to an increasing number of Interet start-ups as well as established high-tech firms, Xylorspace had grown rapidly. The company employed 800 people, 500 of whom were consultants and 250 of wbom were Customer Care Technicians. The remaining 50 were either ccimurale ollicers or performed corporate functions such as accounting, marketing, training, and public relations. The company owned its own building in downtown Austin. Training was an integral part of the company's strategy, and Xyberspace was wholeheartedly committed to training and continuing education. According to Richard Malinovicli, the company's founder and CEO. "Our goal is to have absolutely the best-oducnted consultants in the marketplace. We think this will set us apart from many firms, who no doubt have bright people, but who don't invest anywhere near what we do in education. And I am absolutely convinced that training our consultants in-house is critical to achieving this goal." All employees of the Consulting and Customer Care Groups were required to receive cine full week of computer training twice a year on Internet-related languages such as html, xml, peel, and cgi. and Java as well as tutorials on software packages from Oracle, Vignette, Siebel, and other firm partners. The actual conteot of the classes depended on the newest software developmocots as well as the Consulting and Customer Care Groups' strategic focus areas. For example, the health care practice of the Consulting Group had recently received customized training in the latest hospital automation software. The Training and Educational Services Group spent much cffort and resources to design courses for its consultants built around Xyberspace's client oceds. Classes generally lasted one week and could cover a number of different topics. The normal class size was ten people, and three classes were typically going on at any one time. The Training and Educational Services Group had found that trainees generally preferred smaller class stres, Page 1 of 3