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Group 8

Prasanna K 1311186
Nabyendu Mandal 1311176
Y Visweswara Reddy 1311208
Nikhil Darak 1311180
Manoj R 1311171



Xyberspace, a successful consulting firm with
800 employees
Two groups Consultants & Customer Care
Controversy in allocation of training costs to
both the group in year 1999
Cost overrun of Training group and high
employee turnover were some of the reasons
behind the controversy
FIXED COSTS

Budget Actual
Salaries
Rose 75000 75000
Joners 47000 50000
Chen 48000 51000
Ivanov 55000 57000
Hickery 25000 32000
Total salaries 250000 265000
Benefits 50000 53000
SW License 20000 27500
Depreciation 28000 28000
Maintenance Contract 2000 2000
Course Development 12500 12500
Office Supplies 800 800
Other 500 500
Total fixed costs 363800 389300
VARIABLE COSTS

Budget Actual
Travel 8800 12000
Professional develop. 10000 22500
Phone/Fax 2600 3800
Training/supplies 67500 64775
Trainee Lunch 45000 56250
Total variable costs 133900 159325
Consultant Group Customer Care Group

Budget Actual Budget Actual
Total fixed costs 242533 259533 121267 129767
No. of training session 600 600 300 225
Fixed cost per session 404.22 432.56 404.22 576.74
Increase in rate due to
addtnl expenses
28.33 28.33
Increase in rate due to
employee turnover
0.00 144.19

Total variable costs 89267 115873 44633 43452
No. of training session 600 600 300 225
Variable cost per session 148.78 193.12 148.78 193.12

Total cost per session
(Dual rate system)
553.00 625.68 553.00 769.86
Total cost per session
(Single rate system)
553.00 665.00 553.00 665.00
Did the Training and Educational services Groups use of a
single rate cause its services to look too expensive to the
Consulting and Customer Care Groups ?
Yes !!
By using actual usage of training services for allocating the
fixed costs, the Customer care group is better off, since it
has utilized only 225 out of planned 300 sessions
The Consultant group will also have to share the fixed cost
burden arising out of underutilization under single rate
method
Increase in actual costs will increase total costs for both
the groups in equal proportions
Would a dual rate, which separated fixed from variable
costs, better capture the true costs of the training?
Yes !!
The dual rate method allocates your costs more
precisely than the single rate process.
The fixed costs are allocated based on the number of
sessions planned for each group
Dual rate allocates the incurred fixed cost
proportionately to both groups even if either group
shorts in sending employees to attend training sessions
The variable costs are fairly allocated based on actual
sessions attended by either group
Should budgeted or actual rates be used to allocate training costs to
the user groups ?
Budgeted rates should be used

Efficiency/ inefficiency of one department would not be passed
onto the other

Managers incentive, which is linked to respective groups
performance, would not be affected by activities over which he has
no control

Desirable to reduce the gap between estimated and actual rate
which arises due to wrong estimates

Helps in better planning and control in future




Should the user groups be allocated training costs based
on their budgeted or actual usage of services?
Ideally in any organization its desirable to reduce the
gap between estimated and actual costs which arises
due to wrong estimates
Fixed Costs should be allocated group wise based on
the proportion of employees
Doing it on actual usage of services will affect budget
allocations of other groups using shared services
Variable Costs should be allocated based on actual
usage of training services by respective groups
How should the cost of the Training and
Educational Services Group be allocated ?
Based on Dual rate/Budgeted cost estimates
Focus on adhering to the estimates
Include overall buffer cost component to
cover un-foreseen expenses
Over period of time with better planning this
buffer cost component needs to be minimized
Thank you!

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