Charlene is the owner of Charlene’s Computer Care (3C) and hasbeen in the business of servicing computers and computer systems ataffordable prices for just over five years. 3C‘s primary clientsare local businesses but include some residential customers. Theiradvertised approach is to analyze the problem, develop a range ofIT options, explain their specific recommendation to the customer,and finally estimate the time and costs associated with the serviceprior to commencing work.
Their approach has proven successful, but competition is gettingmuch stiffer, and Charlene is concerned that her approach todetermining costs and prices for any particular job is notcorrectly incorporating all of the company's costs. She has heardabout the concept of cost allocation and asks her accountant tocreate an allocation system for the business.
Her accountant decides to implement a single-driver allocationsystem and needs to develop a reliable cost function to estimatetotal indirect costs. She will use this estimate for the numeratorof the single driver "overhead" rate, and she will use servicehours as the cost driver and denominator in the "overhead"rate.
To estimate the parameters of this cost function, the accountantfirst studied the behavior of last month's costs, when the companyspent 286 service hours repairing 41 computer systems. Here are theresults of her analysis:
| Cost Item | Fixed Cost | Variable Cost |
| Utilities | $224 | $119 |
| Office rent | $3,552 | $0 |
| Administration | $3,374 | $216 |
| Supplies | $0 | $3,313 |
| Training | $362 | $312 |
| Total | $7,512 | $3,960 |
Concerned that last month may not have been a typical month andher breakdown of fixed and variable costs not completely correct,the accountant decided to use the high-low method to create anothercost function. She gathered individual cost and service hour datafrom the last six months; the following were for the two monthswhen costs and service hours were the lowest and the highest:
| Cost Item | low month | high month |
| Utilities | $204 | $307 |
| Office rent | $2,986 | $2,986 |
| Administration | $3,137 | $3,524 |
| Supplies | $1,414 | $3,521 |
| Training | $603 | $731 |
| Total | $8,344 | $11,069 |
| Service hours | 230 | 560 |
| Customers | 29 | 69 |
Next month, Charlene expects the company to spend 450 hourssolving clients' computer system problems.
REQUIRED [ROUND ALL PER-UNIT COSTS TO TWO DECIMALPLACES AND TOTAL COSTS TO THE NEAREST DOLLAR.]
Part A (6 tries; 5 points)
What is the accountant's estimate of total "overhead" next month ifshe uses the cost function based on her analysis of last month'scost data?
| Incorrect. | Tries 1/6 | Previous Tries |
Part B (6 tries; 5 points)
What is the accountant's estimate of total "overhead" next month ifshe uses the cost function based on the high-lowmethod?
