IE 335-Engineering Cost Analysis Fall 2017 FINAL EXAM PLEASE SHOW ALL WORK 1. (2
ID: 2600779 • Letter: I
Question
IE 335-Engineering Cost Analysis Fall 2017 FINAL EXAM PLEASE SHOW ALL WORK 1. (20 pts) A university has two colleges and two service departments with the pertinent information shown in the table. Public safety costs are allocated on the basis of of students rooms and library costs on the basis Public Safety Library Liberal Arts Business Direct dept.costs $2,500,000 $ 1,900,000 | $11,500,000 3,200 $9,000,000 Students 29 150 1.800- 80 Rooms A) Allocate service department costs using the direct method. B) Allocate service department costs using the step-down method. Start with public safety.Explanation / Answer
A. direct method:
Allocation of costs of public safety:
rooms used by colleges= 150+80= 230
public safety overhead rate per room= 2500000/230= 10869.57
Allocation of public safety department costs:
to liberal arts= 150* 10869.57= 1630435
to business= 80*10869.57= 869565
Allocation of overhead costs of library:
Total number of students= 3200+1800= 5000
overhead cost per student=11500000/5000= 2300
Allocation:
to liberal arts= 3200*2300= 7360000
to business= 1800*2300= 4140000
B. step-down method:
in this method, service department costs are allocated service departments as well.
Allocation of public safety overhead:
Total number of rooms used including by library= 29+150+80= 259
Overhead cost per room= 2500000/259= 9652.51
Allocation:
to library= 29*9652.51= 279923
to liberal arts= 150*9652.51= 1447877
to business= 80*9652.51= 772200
Allocation of library overhead costs:
total overhead costs of liabrary including those allocated from public safety= 11500000+279923= 117799923
overhead rate per student= 117799923/5000= 2355.98
Allocation:
to liberal arts= 3200*2355.98= 7539151
to business= 1800*2355.98= 4240722