[16 points] GR Consulting has three operating departments: SOX compliance servic

Question

[16 points] GR Consulting has three operating departments: SOX compliance services, internal audit services, and executive recruiting services. Supporting GR Consulting's mission are two service departments: the legal department that draws up the engagement contracts and defends against civil suits brought against the company, and an information technology department that provides connectivity services to all employees and troubleshooting as need The following data applies to GR Consulting: Annual Cost Number of Staff 16 8 4 Value of SOX compliance Internal audit Executive recruiting Legal Information technology 16,000,000 13,000,000 $ 10,800,000 6,000,000 4,000,000 1,000,000 $1,200,000 $7,000,000 (") the annual cost figures do not include costs allocated from service departments GR Consulting uses the step method in allocating service department costs. GR Consulting allocates its information technology costs based on each department's staffing level allocates legal department expenses based on each department's value of engagement services. . The firm Required: A. Allocate the information technology cost to the operating departments and legal department. After allocating the information technology cost, allocate the legal department cost to the operating departments. B. C. Compute the total allocated cost from the service departments to each operating department.

Explanation / Answer

Service Departments Operating Departments Legal IT SOX Compliance Internal Audit Executive Recruiting Total Costs prior to service department cost allocations 1000000 1200000 10800000 6000000 4000000 23000000 A. Allocation of IT department costs 80000 -1200000 640000 320000 160000 1080000 0 11440000 6320000 4160000 23000000 B. Allocation of Legal department costs -1080000 0 480000 390000 210000 Total operating department costs $ 0 0 11920000 6710000 4370000 23000000 C. Total allocated cost from service department to each operating department SOX Compliance Internal Audit Executive Recruiting Total IT department costs allocated 640000 320000 160000 1120000 Legal department costs allocated 480000 390000 210000 1080000 Total costs allocated from service departments $ 1120000 710000 370000 2200000

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