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Required Information

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Cranshaw Business Services $($CBS$)$ operates an Information technology $($IT$)$ consulting firm out of two offices: Detrolt and

Los Angeles. Corporate services, such as legal, 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 profitability assessment. The Detrolt office is the original

unit of the company and is well established, having long$-$time clients from the automotive and other manufacturing

industries. The Los Angeles office is new with a smaller, much more varled, clientele. The costs of personnel services at

CBS are currently allocated on the basis of the number of employees in each office. The annual costs of the personnel

department total $$350,000.$ Data for the fiscal year just ended show the following:

Required:

a$.$ Compute the cost allocated to each unit using the current allocation system.

b$.$ The manager of the Detrolt office belleves that Detrolt gets little benefit from the personnel office other than the occasional hire

and termination help. The manager asks the controller's office to estimate the amount of Personnel Department cost assoclated

with routine personnel matters $($benefits and so on$)$ and those assoclated with hiring employees and assisting with departing

employees $($transitions$).$ The controller responds that if they separated the overhead costs on this basis, the cost of the Personnel

Department for routine matters is $$200,000$ and the cost of the Personnel Department for transitions $($each hire and each departure

counts as one transition$)$ is $$150,000.$

Recompute the costs allocated to each unit using the separate rates for routine and transitional matters.