Question
WKU has the following two projects: X: Public Health about controlling COVID-19 spread. CDC Center for Disease Control) will reimburse WKU for the amount of
WKU has the following two projects:
X: Public Health about controlling COVID-19 spread. CDC Center for Disease Control) will reimburse WKU for the amount of 300% of the reported costs
incurred in the project.
Y: Developing cheap alternative to N95 mask. This developed method will be sold to any mask manufacturer.
For each project, WKU incurred both direct and indirect costs. Indirect costs are allocated using a base chosen by WKU. The following information is given:
WKU incurred a total of $4,000,000 indirect costs (utilities, supplies, assistant salaries, and others). Since these costs are indirect, they cannot be traced specifically to individual projects. Thus, the university allocates the indirect costs arbitrarily.
The following additional information is given:
Project | Direct costs | Materials used in dollars (M$) | Space used in square feet (SF) | Assistants time used in hours (AH) | Computer time used in hours (CH) |
X | $5,000,000 | $300,000 | 5,000 | 4,000 | 80,000 |
Y | $3,000,000 | $200,000 | 5,000 | 6,000 | 20,000 |
To maximize its benefit, the university wants to use which one of the following (as its indirect cost allocation base)?
A. | AH | |
B. | CH | |
C. | SF | |
D. | M$ | |
E. | Any. All allocation bases result in the same amount of benefit to the university. |
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