Tobias & Barfield LLC has three revenue departments: litigation (Lit.), family practice (FP), and legal consulting (LC).

In addition, the company has two support departments, administration and EDP.

Administration costs are allocated to the three revenue departments on the basis of number of employees. EDP's fixed costs are allocated to revenue departments on the basis of peak hours of monthly service expected to be used by each revenue department.

EDP's variable costs are assigned to the revenue departments at a transfer price of $80 per hour of actual service. Following are the direct costs and the allocation bases associated with each of the departments:

a. Was the variable EDP transfer price of $80 adequate? Explain.
b. Allocate all support department costs to the operating departments using the direct method.
c. What are the total costs of the operating departments after the allocation in(b)?

Transcribed Image Text:

ALLOCATION BASES: NUMBER OF EDP Hours Direct Costs (before transfer costs) $900,000 mployees Peak Hours Administration 30 n/a n/a 181,280 Lit. 10 1,220 ALLOCATION BASES: NUMBER OF FP 510,000 680,000 240 650 LC 25 190