The Sales company is composed of five divisions. The company has an information technology support team (ITST) which provides services to each division.

Currently ITST has 15 "consultants" with total salary and benefits of $2,730,000.

When a division uses ITST services, they receive an internal charge (an expense on their divisional income statement) of $108 per hour.

This rate was calculated as total salary and benefits divided by 25,278 expected billable hours.

The company estimates that purchasing the IT support services from an outside firm would cost approximately $150 per hour, and the divisions are generally happy with services provided.

In the past year, the ITST group billed out $2,047,518.

Given the ITST group did not recover its costs, the CFO, Jean, is proposing to increase the allocation (billing rate) to $144 per hour.At a recent staff meeting she justified the proposal by saying, "Look, if the five divisions use the same amount of ITST hours in the coming year and we bill at $144, the ITST group will recover its costs of $2,730,000. I really like these service divisions to allocate out all of their expected costs!"

Question: Comment on the likely result of the proposal. Is it a good plan?