Ernst & Gray, CPAs has three divisions: audit, tax, and business consulting.When the specifications for the new computer system were established, the audit division needed 50% of the capacity, the tax division required 30%, and business consulting required 20%.The fixed computer department costs are allocated based on computer needs.The variable costs of the computer department are allocated based on the minutes of computer time that each department uses.The computer division budget for fixed costs is $450,000, and the budget for variable costs is $145,600.The company anticipates using 520,000 minutes of computer time.If the tax division uses 104,000 minutes of computer time this year, what is the total amount of computer department costs that will be allocated to the tax division (round your intermediate calculation to two decimal places)?
A)$173,680
B)$135,000
C)$164,120
D)$119,120

Question

Quizplus · Accepted Answer

To find the total amount of computer department costs that will be allocated to the tax division, we need to first calculate the total amount of variable costs and fixed costs.

Total budget = fixed costs budget + variable costs budget
Total budget = $450,000 + $145,600
Total budget = $595,600

Now we can allocate the costs to each division based on their percentage of computer time usage:

Audit division: 520,000 minutes x 50% = 260,000 minutes
Tax division: 104,000 minutes x 30% = 31,200 minutes
Business consulting division: 520,000 minutes x 20% = 104,000 minutes

Fixed cost allocation:
Audit division: 260,000 minutes / 520,000 minutes x $450,000 = $225,000
Tax division: 31,200 minutes / 520,000 minutes x $450,000 = $27,000
Business consulting division: 104,000 minutes / 520,000 minutes x $450,000 = $90,000

Variable cost allocation:
Audit division: 260,000 minutes / 520,000 minutes x $145,600 = $72,800
Tax division: 104,000 minutes / 520,000 minutes x $145,600 = $29,120
Business consulting division: 104,000 minutes / 520,000 minutes x $145,600 = $29,120

Total cost allocation:
Audit division: $225,000 + $72,800 = $297,800
Tax division: $27,000 + $29,120 = $56,120
Business consulting division: $90,000 + $29,120 = $119,120

Therefore, the total amount of computer department costs that will be allocated to the tax division is $56,120.

Ernst & Gray, CPAs Has Three Divisions: Audit, Tax, and Business