Thompson Aeronautics repairs aircraft engines. The companys Purchasing Department supports its two departments, Defense and Commercial. The Defense division has contracts with the Department of Defense and the Commercial division works primarily with domestic airlines and air freight companies. The cost of the Purchasing Department is $7.60 million annually.

Information on the activity of the Purchasing Department for the last year follows.

	Number of Purchase Orders			Dollar Amount of Purchases
Defense		8,800		$	120,000,000
Commercial		35,200			180,000,000

Required:

a. What is the cost charged to each division if Thompson allocates Purchasing Department costs based on the number of purchase orders?

b. What is the cost charged to each division if Thompson allocates Purchasing Department costs based on the dollar amount of the purchases?

c. Contracts with the Defense Department are on a cost-plus fixed fee basis, meaning the price is based on the cost of repairing an engine, including any overhead assigned to the division. Contracts with commercial airlines and air freight companies are almost all fixed price, meaning the price does not depend directly on the cost. Will this affect Thompsons choice of an allocation base?

A consulting firm has two departments, Corporate and Government. Computer support is common to both departments. The cost of computer support is $11.72 million. The following information is given: Gigabytes of Storage 101,300 46,300 Number of Consultants 155 160 Corporate Government Required: What is the cost allocation if fixed computer costs of $7.20 million are allocated on the basis of number of consultants and the remaining costs (all variable) are allocated on the basis of the number of gigabytes of storage used by the department? (Round your answers to the nearest whole dollars. Enter your answers in dollars, not in millions. Do not round intermediate calculations.) Corporate Government Fixed Variable Total Complete this question by entering your answers in the tabs below. Required a Required B Required C What is the cost charged to each division if Thompson allocates Purchasing Department costs based on the number of purchase orders? (Do not round intermediate calculations. Enter your answers in dollars, not in millions.) Cost Allocation Defense Commercial Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the cost charged to each division if Thompson allocates Purchasing Department costs based on the dollar amount of the purchases? (Do not round intermediate calculations. Enter your answers in dollars, not in millions.) Cost Allocation Defense Commercial