Evaluate the cost allocation system used and recommend changes if you think any are necessary. Case: Louis Dela Cruz, the new dean of the School of...
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Evaluate the cost allocation systemrecommend Case: Printing and Duplicating Department 

used and changes if you think any are necessary. 

Louis Dela Cruz, the new dean of the School of Computer Science at Metro University, is concerned. It is only early February, and he has just received a report from the university's printing and duplicating service showing that the school has exceeded its budget for duplicating for the academic year. The report appears as follows: 

Statement of Budget and Charges for the School of Computer Science 

September to January 

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Annual Budget Actual Charges Over (Under) 

P105,000 P108,750 P3,750 

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An enclosed note states that Louis must either stop using the service or obtain approval of a supplemental budget request from the university's chief fiscal officer. Louis pulls out his latest statement as of December and finds out that actual charges at that time were P45,750. Since the school was on vacation during a good part of January, he wonders how P63,000 could have been incurred in January. 


He finds out that costs for the Printing and Duplicating Department in January were P157,500, of which P17,500 was for paper, P50,000 for salaries, P50,000 for machine rentals, and P40,000 for general overhead (allocated share of all university utilities, depreciation, etc.). a total of 35,000 copies was made in January, a relatively low number because of the vacation. However, several faculty members in the School of Computer Science had a substantial amount of printing done for scholarly papers that they were circulating to other professors throughout the country. 


The School of Business Science was responsible for 14,000 of the 35,000 copies. The P63,000 charge was computed by dividing total department costs for the month by the number of copies (P157,500/35,000) to arrive at a charge of P4.50 per copy. Louis also learned that during a typical month about P215,000 in cost is incurred and 150,000 copies are processed. Paper is the only variable cost. 

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