Question

Help Save Submit Exam -Ch 12,3 sis Greenfield Consultants conducts analyses of public policy issues. The company has two units: Government (with various U.S. 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 costs Direct contract hours worked Corporate Government Total $ 600,000 $2,400,000 $3,000,000 1,500 3,000 4,500 The controller expects indirect costs to total $6.0 million next year. Revenues from Corporate clients are expected to be $1.7 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 hours 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? Complete this question by entering your answers in the tabs below. Required A Required B 1. What cost would be allocated to the two units (Corporate and Government)? 2. What total revenue would they expect to collect next year? Enter your answers in dollars and not in millions (i.e., 2.34 million should be entered as 2,340,000).) Corporate Government Total

Answer 1

a.
1	Indirect cost of $ 6000000 allocated on the basis of direct costs at 600000:2400000 or 1:4
			Corporate	Government	Total
	Cost allocated		1200000	4800000	6000000
			6000000*(1/5)	6000000*(4/5)
2	Total revenue:
			Corporate	Government	Total
	Total revenue		1700000	8280000	9980000
			(Fixed fee)	(Note:1)
	Note:1
	Revenue
			Government
	Direct cost		2400000
	Cost allocated		4800000
	Total cost		7200000
	Add:Profit at 15%		1080000
	Revenue		8280000
b.
1	Indirect cost of $ 6000000 allocated on the basis of direct contract hours worked at 1500:3000 or 1:2
			Corporate	Government	Total
	Cost allocated		2000000	4000000	6000000
			6000000*(1/3)	6000000*(2/3)
2	Total revenue:
			Corporate	Government	Total
	Total revenue		1700000	7360000	9060000
			(Fixed fee)	(Note:1)
	Note:1
	Revenue
			Government
	Direct cost		2400000
	Cost allocated		4000000
	Total cost		6400000
	Add:Profit at 15%		960000
	Revenue		7360000