Question

Charlene is the owner of Charlene's Computer Care (3C) and has been in the business of servicing computers and computer systems at affordable prices for just pver five years. 3C's primary dients are local businesses but include spme residential customers. Their advertised approach is to analyze the problem, develop a range of IT options, explain their specific recommendation to the customer, and finally estimate the time and costs associated with the service prior to commencing work. Their approach has proven successful, but competition is getting much stiffer, and Charlene is concemed that her approach to detemining costs and prices for any particular job is not correctly Incorporating all of the company's costs. She has heard about the concept of cost allocation and asks her accountant to create an allocation system for the business. Her accountant decides to implement a single-driver allocation system and needs to develap a reliable cost function to estimate total indirect costs. She will use this estimate for the numerator of the single driver "overhead" rate, and she will use service hours as the cost driver and denominator in the "overhead" rate. To estimate the parameters of this cost function, the accountant first studied the behavior of last month's costs, when the company spent 295 service hours repaining 43 computer systems. Here are the results of her analysis: Variable Cost Cost Item Fixed Cost Utilities $226 $86 s3,050 Office rent $0 Administration $3,475 $203 Supplies $0 $3,256 Training $313 $349 Total $7,100 $3,858 Concemed that last month may nat have been a typical month and her breakdown of fixed and variable costs not completely correct, the accountant decided ta use the high-low method to create another cost function. She gathered individual cost and service hour data from the last six months; the following were for the two months when costs and service hours were the lowest and the highest: Cost Item low month high month Utilities $239 $314 Office rent $2.987 $2,987 $3,514 $3.105 Administration 35,105 $1.506 $3,520 Supplies $1,506 Training Total $582 $733 s8,419 $11,068 Service hours 246 563 Customers 32 71 Next month, Charlene expects the company to spend 440 hours solving clients' computer system problems. REQUIRED [ROUND ALL PER-UNIT COSTS TO TWO DECIMAL PLACES AND TOTAL COSTS TO THE NEAREST DOLLAR.] Part A (6 tries; 5 points) What is the accountant's estimate of total "overhead" next month it she uses the cost function based on her analysis of last month's cost data? Submit Answer Tries 0/5 Part B (6 tries; 5 points) What is the accountant's estimate of total "overhead" next month it she uses the cost function based on the high-low method? Submit Answer Tries 0/5

Answer 1

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Charlene
Answer to part A:
Total overhead cost of next month if she uses the cost function based on her analysis of last month's data:	Amount $
Fixed cost	7,100.00
Variable cost	3,858.00
Overhead cost	10,958.00

Answer to part B:
High Low method
Variable cost=	(Highest activity cost- Lowest activity cost)/ (Highest activity units- Lowest activity units)
For Utilities:
	Cost	Hours
Highest activity	314.00	563.00
Lowest activity	239.00	246.00
Difference	75.00	317.00
Variable cost per time	0.24
Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost	314-(563*0.24)
Fixed cost	178.88
Cost of utilities for 440 hours	Amount $
Hours	440.00
Variable cost per time	0.24
Total Variable cost	104.10
Fixed cost	178.88
Total cost	282.98

For Office rent:
Fixed cost	2,987.00

For Administration:
	Cost	Hours
Highest activity	3,514.00	563.00
Lowest activity	3,015.00	246.00
Difference	499.00	317.00
Variable cost per time	1.57
Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost	3514-(563*1.57)
Fixed cost	2,630.09
Cost of administration for 440 hours	Amount $
Hours	440.00
Variable cost per time	1.57
Total Variable cost	692.62
Fixed cost	2,630.09
Total cost	3,322.71

For Supplies:
	Cost	Hours
Highest activity	3,520.00	563.00
Lowest activity	1,506.00	246.00
Difference	2,014.00	317.00
Variable cost per time	6.35
Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost	3520-(563*6.35)
Fixed cost	-
Cost of supplies for 440 hours	Amount $
Hours	440.00
Variable cost per time	6.35
Total Variable cost	2,795.46
Fixed cost	-
Total cost	2,795.46

For Training:
	Cost	Hours
Highest activity	733.00	563.00
Lowest activity	582.00	246.00
Difference	151.00	317.00
Variable cost per time	0.48
Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost	733-(563*0.48)
Fixed cost	462.76
Cost of training for 440 hours	Amount $
Hours	440.00
Variable cost per time	0.48
Total Variable cost	209.59
Fixed cost	462.76
Total cost	672.35

Total overhead cost
	Amount $
Cost of utilities	282.98
Office rent	2,987.00
Cost of Administration	3,322.71
Cost of supplies	2,795.46
Cost of training	672.35
Total overhead cost	$ 10,061.00