Gotham University offers only high-tech graduate-level programs. Gotham has two principal operating departments, Engineering and Computer Sciences, and two support departments, Facility and Technology Maintenance and Enrollment Services. The base used to allocate facility and technology maintenance is budgeted total maintenance hours. The base used to allocate enrollment services is number of credit hours for a department. The Facility and Technology Maintenance budget is $350,000, while the Enrollment Services budget is $950,000. The following chart summarizes budgeted amounts and allocation-base amounts used by each department: (retrieved from Horngren TestGen, Pearson Accounting Lab chapter 15).
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Services Provided: (Annually)
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Budget
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Engineering
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Computer Sciences
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F&T Maintenance
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Enrollment Service
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F&T Maintenance
(in hours)
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$350,000
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1,000
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2,000
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Zero
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5,000
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Enrollment Service
(in credit hrs)
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$950,000
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24,000
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36,000
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2,000
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Zero
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Prepare a schedule which allocates service department costs using the step-down method with the sequence of allocation based on the highest-percentage support concept. Compute the total amount of support costs allocated to each of the two principal operating departments, Engineering and Computer Sciences.
Now consider that John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract. What advice can you provide to reduce contract disputes over reimbursement amounts based on costs?