I would recommend to LCI to

allocate the overhead cost based

on the job department and
the approximate allocated cost
%.
By doing so, this will lead to a
adjusted cost bases for each
department:
Analyst Cost per Hour: $29.04
Call Centre Cost Per Hour:
$22.67
General and Admit per Hour:
$9.12
I would recommend to LCI to
allocate the overhead cost based
on the job department and
the approximate allocated cost
%.
By doing so, this will lead to a
adjusted cost bases for each
department:
Analyst Cost per Hour: $29.04
Call Centre Cost Per Hour:
$22.67
General and Admit per Hour:
$9.12
To: Sara Lehtonen

Memo: Lehtonen Consulting Inc

Cost Allocation:
For the cost allocation alternative, I suggest allocating overhead cost based on job department and the
approximate allocated cost %

Analyst Cost /hr = $29.04

Call Centre Cost /hr = $22.67

General and Administration /hr = $9.12

With this calculation, the 3 jobs will have margin as follow:

Job A: 35%

Job B: 33%

Job C: -15%

Therefore, Sara should focuse on Job A, which is the core operation line that generates revenue.

Outsourcing vs Self-making

Cost of Call Centre:

Wages: 660,000

Supervisor Salary: 100,000

Telephone: 160,000

Rent: 37,500

Asset Sold: 1000

Total cost of call center = $958,000

Cost of first company: 44,000 hrs * 28 + 60*500 = $1,262,000 > $958,000

Cost of second company: 44,000 hrs*16 + 60*200 = $716,000 < $958,000

Therefore, company could switch to outsourcing and choose DFNC, the second company to do the job.