(Effect of service department allocations on reporting and evaluation) Janson Corpo¬ ration is a diversified manufacturing company with corporate headquarters in Jacksonville, Florida. The three operating divisions are the Canaveral Division, the Plastic Products Division, and the Metalic Products Division. Much of the manufacturing activity of the Canaveral Division is related to work performed for the government space program under negotiated contracts.

Janson Corporation headquarters provides general administrative support and computer services to each of the three operating divisions. The computer services are provided through a computer time-sharing arrangement. The central processing unit (CPU) is located in Jacksonville, and the divisions have remote terminals that are connected to the CPU by telephone lines. One standard from the Cost Accounting Standards Board provides that the cost of general admin¬ istration may be allocated to negotiated defense contracts. Further, the standards provide that, in situations in which computer services are provided by corporate headquarters, the actual costs (fixed and variable) of operating the computer department may be allocated to the defense division based on a reasonable mea¬ sure of computer usage.

The general managers of the three divisions are evaluated based on the before-tax performance of each division. The November 1997 performance eval¬ uation reports (in millions of dollars) for each division are presented below.

Without a charge for computing services, the operating divisions may not make the most cost-effective use of the Computer Systems Department’s re¬ sources. Outline and discuss a method for charging the operating divisions for use of computer services that would promote cost consciousness by the operating divisions and operating efficiency by the Computer Systems Department.
(CMA adapted)

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CANAVERAL DIVISION PLASTICS PRODUCTS METALIC PRODUCTS DIVISION DIVISION Sales $23 $15 $55 Cost of goods sold (13) (7) (38) Gross profit $10 $ 8 $17 Selling and administrative: Division selling and administration costs $ 5 $ 5 $ 8 Corporate general administration costs Corporate computing 1 Total $ 7 $ 5 $ 8 Profit before taxes $ 3 $ 3 $ 9