Question

Please explain in detail how you reach each answer.

Problem 2-67 (Static) Cost Allocation and Pricing (LO 2-3) points Greenfield Consultants conducts analyses of public policy issues. The company has two units: Government with various US government agencies as the only clients) and Corporate with several corporations as clients). Government business is charged based on the total costs (direct and indirect) plus a 15 percent fee (profit). Corporate clients are charged a fixed fee negotiated at the beginning of the project. During the planning process for the following year the controller has estimated costs for the two units Direct to Direct contract hours worked Corporate Government $ 500,000 $2,000,000 1.000 2.000 Total $2,500,000 .000 The controller expects indirect costs to total $4,5 million next year Revenues from Corporate clients are expected to be $12 million Required: a. Suppose Greenfield chooses to allocate indirect cost based on direct cost. 1. What cost would be allocated to the two units (Corporate and Government)? 2. What total revenue would they expect to collect next year? b. Suppose Greenfield chooses to allocate indirect cost based on direct contract ours worked, 1. What cost would be allocated to the two units (Corporate and Government 2. What total revenue would they expect to collect next year Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B

Answer 1

a]		Corporate		Government		Total
1]	Direct contract hours	1000		2000		3000
	Percentage	33.33	%	66.67	%	100.00
	Allocation of indirect cost	$         15,00,000		$         30,00,000		$         45,00,000
	Percentage	33.33	%	66.67	%	100.00
2]	Direct cost	$           5,00,000		$         20,00,000		$         25,00,000
	Allocated indirect cost	$         15,00,000		$         30,00,000		$         45,00,000
	Total cost	$         20,00,000		$         50,00,000		$         70,00,000
	Fixed fee (Corporate)	$                        -
	Fixed fee (Government)			$            7,50,000
	Total revenue	$         12,00,000		$         57,50,000		$         69,50,000
b]		Corporate		Government		Total
1]	Direct cost	500000		2000000		2500000
	Percentage	20.00	%	80.00	%	100.00
	Allocation of indirect cost	$           9,00,000		$         36,00,000		$         45,00,000
	Percentage	20.00	%	80.00	%	100.00
2]	Direct cost	$           5,00,000		$         20,00,000		$         25,00,000
	Allocated indirect cost	$           9,00,000		$         36,00,000		$         45,00,000
	Total cost	$         14,00,000		$         56,00,000		$         70,00,000
	Fixed fee (Corporate)	$                        -
	Fixed fee (Government)			$           8,40,000
	Total revenue	$         12,00,000		$         64,40,000		$         76,40,000