Question

Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred: Computer services (85% fixed) $260,000 Building occupancy 600,000 Personnel costs 110,000 Total common costs $970,000 The following information is available concerning various activity measures and service usages by each of the divisions: Division A Division B Area occupied (square feet) 20,000 40,000 Payroll $380,000 $180,000 Computer time (hours) 200 220 Computer storage (megabytes) 4,050 -0- Equipment value $200,000 $250,000 Operating profit (pre-allocations) $555,000 $495,000 If common computer service costs are allocated using computer time as the allocation basis, what is the computer cost allocated to Division B

Answer 1

$136,190

Step-by-step explanation:

The computation of computer cost allocated to Division B is shown below:-

Computer cost allocated to Division B = Computer service cost × Computer time of Division B ÷ Total computer time.

= $260,000 × 220 ÷ (200 + 220)

= $260,000 × 220 ÷ 420

= $260,000 × 0.5238

= $136,190

Therefore for computing the computer cost allocated to Division B we simply applied the above formula.