HH2H has three departments: accounting, engineering, and sales. All three departments have been using the same computer system which operates bookkeeping software, engineering software, and client management programs. The heaviest user is the engineering department whose software is very processor intensive, giving all users a fairly slow response time from the system. The company installed a second mainframe some months ago, with quad processors, designed to do high speed calculations, and installed new engineering software that was more user-friendly. 

The four engineering teams, however, haven't been using it much, and the accountants and salespeople haven't transferred any work to the new machine. Jack Carpenter, the controller, allocates the cost of each computer to the departments based on minutes of computer time used. "It seems like a fair way of doing it," he said. "This way, those who use the computer most get charged the most for it." Dick Rainey, VP of engineering, responded, "Ok. Then, as long as we all keep using then old machine, we are going to pay a very low rate per hour. It was a cheaper machine anyway and it's probably fully depreciated by now. We're all scared to use the new machine because the cost per hour is so high and that hurts our performance measures." 

Mike Wescott, CEO, ordered that something be done to encourage use of the new machine. "Its been bought and paid for but its just sitting here. Its functionally better than the old machine and should enable the engineers to do their work more efficiently. Operating cost are the same for both machines, the only difference is the higher depreciation cost and that's fixed. It doesn't make any difference whether we use the machine a lot or a little; it still costs about the same."

Suggest an alternative way in which computer costs can be allocated to encourage each of the engineering teams to use it and explain to Dick Rainey why your new allocation system will be in the company's best interets. Describe how each of the three departments will be affected by ukur new method of allocation.

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Cost Allocation Costs are the expenses that are incurred while carrying on various activities in an ... View the full answer