Kentfield Advisory Services (KAS) is a large management consulting firm organized into two groups: Governmental Services (GS) and Commercial Support (CS). Corporate information technology (IT) services support both groups. The cost of computer support is $33 million. The following information is given:

Required

a. What is the cost charged to each group if the allocation is based on the utilization?

b. What is the cost charged to each group if revenue is the allocation basis?

c. Most of the business in Commercial Support is priced on a fixed fee basis, and most of the work in the Governmental Services Department is priced on a cost-plus fixed fee basis. Will this affect the choice of the allocation base? Should it?

Transcribed Image Text:

Governmental Services.. Commercial Support. Utilization 57% 43 Revenues ($000) $221,520 402,480