A consulting firm has two departments, Corporate and Government. Computer support is common to both departments. The cost of computer support is $13.27 million. The following information is given: Gigabytes of Storage Number of Consultants Corporate 98,200 145 Government 60,000 175 Required: What is the cost allocation if fixed computer costs of $7.43 million are allocated on the basis of number of consultants and the remaining costs (all variable) are allocated on the basis of the number of gigabytes of storage used by the department

Instructions are listed below.

Explanation:

Giving the following information:

The cost of computer support is $13.27 million.

Gigabytes of Storage -  Number of Consultants:

Corporate 98,200 145

Government 60,000 175

Fixed computer costs of $7.43 million are allocated based on the number of consultants.

Variable costs are allocated based on the number of gigabytes of storage used by the department.

First, we need to determine the estimated overhead allocation rate for each type of cost (fixed and variable).

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Fixed costs:

Estimated manufacturing overhead rate= 7,430,000/(145 + 175)= $23,218.75 per consultant.

Variable cost:

Estimated manufacturing overhead rate= (13,270,000 - 7,430,000)/ (98,200 + 60,000)= $36.91 per gygabyte

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Corporate:

Allocated MOH= 23,128.75* 145 + 36.91*98,200= $6,978,230.75

Government:

Allocated MOH= 23,128.75*175 + 36.91*60,000= $6,262,131.25

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the third answer is correct.