Question

I need help with this accounting problem.

Greenfield Consultants conducts analyses of public policy issues. The company has two units: Government (with various U.S. government agencies as the only clients) and Corporate (with several corporations as clients). Government business is charged based on the total costs (direct and indirect) plus a 15 percent fee (profit). Corporate clients are charged a fixed fee negotiated at the beginning of the project. During the planning process for the following year, the controller has estimated costs for the two units. Corporate Government Total Direct costs $ 580,000 $2,320,000 $2,900,000 Direct contract hours worked 1,400 2,800 4,200 The controller expects indirect costs to total $5.7 milion next year. Revenues from Corporate clients are expected to be $1.6 million. Required: a. Suppose Greenfield chooses to allocate indirect cost based on direct cost. 1. What cost would be allocated to the two units (Corporate and Government)? 2. What total revenue would they expect to collect next year? b. Suppose Greenfield chooses to allocate indirect cost based on direct contract hours worked. 1. What cost would be allocated to the two units (Corporate and Government)? 2. What total revenue would they expect to collect next year? Complete this question by entering your answers in the tabs below. Required A Required B 1. What cost would be allocated to the two units (Corporate and Government)? 2. What total revenue would they expect to collect next year? (Enter your answers in dollars and not in millions (.e., 2.34 million should be entered as 2,340,000).)

Answer 1

Solution a:

Event	Particulars	Corporate	Government	Total
1	Direct Cost	$580,000	$2,320,000	$2,900,000
	Percentage	20%	80%	100%
	Allocation of indirect cost	$1,140,000	$4,560,000	$5,700,000
	Percentage	20%	80%	100%
2	Direct cost		$2,320,000
	Allocated indirect costs		$4,560,000
	Total cost		$6,880,000
	Fixed fee (Corporate)	$1,600,000
	Fixed fee (Government)		$7,912,000
	Total revenue	$1,600,000	$7,912,000	$9,512,000

Total cost	$6,880,000
Margin at 15%	$1,032,000
Total Revenue	$7,912,000

Solution b:

Event	Particulars	Corporate	Government	Total
1	Direct labor hours	1,400	2,800	4,200
	Percentage	33.33%	66.67%	100.00%
	Allocation of indirect cost	$1,900,000	$3,800,000	$5,700,000
	Percentage	33.33%	66.67%	100.00%
2	Direct cost		$2,320,000
	Allocated indirect costs		$3,800,000
	Total cost		$6,120,000
	Fixed fee (Corporate)	$1,600,000
	Fixed fee (Government)		$7,038,000
	Total revenue	$1,600,000	$7,038,000	$8,638,000

Total cost	$6,120,000
Margin at 15%	$918,000
Total Revenue	$7,038,000