Question

Check my work Check My Work button is now enabled3Item 5Item 5 10 points Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results. Toot! TiX Total Users 7,700 15,600 23,300 Revenues $ 1,350,000 $ 1,040,000 $ 2,390,000 Engineering hours 6,825 4,825 11,650 Engineering cost $ 333,375 $ 453,000 $ 786,375 Administrative costs $ 629,100 Required: a. Compute the predetermined overhead rate used to apply administrative costs to the two services assuming SMI uses the engineering hours to allocate administrative costs. b. Based on the rates computed in requirement (a), what is the profit for each service

Answer 1

Answer:

a. Predetermined administration costs - $ 54 per engineering hours

b. Profit per Toot  - $ 648,075

   Profit per Tix       $ 326,450

Explanation:

Computation for predetermined overhead rate for admin costs

Estimated administration costs                                              $ 629,100

Engineering hours - Toot -  6,825

Engineering hours - Tix    -  4,825

Total engineering hours                                                              11,650

Predetermined rate for administration costs

$ 629,100/ 11,650 hours                                                       $ 54 per hour

Computation of total profit for each service

Administration costs - Toot = 6,825 hours * $ 54 per hour = $ 368,550

Administration costs - Tix =   4,825 hours * $ 54 per hour = $  260,550

                                                              Toot                Tix

                                                                 $                    $

Revenues                                            1,350,000       1,040,000

Engineering costs                                 333,375           453,000

Allocation of admin costs                     368,550         260,550

Total costs                                              701,925          713,550

Profit per service                                    648,075          326,450