Question

Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,400,000. You have been provided with the following information for the upcoming year:
Connections Time on Network (hours)
Commercial 60,000 120,000
Retail 80,000 150,000
Consumer 100,000 330,000

The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections. The remaining costs should be allocated based on the time on the network. What is total server network costs allocated to the Consumer Division, assuming the company uses dual-rates to allocate common costs?
A. $1,200,000.
B. $1,093,333.
C. $954,896.
D. $750,000.

Answer 1

Answer:

B. $1,093,333.

Explanation:

The computation of the total server network costs allocated to the Consumer Division is shown below:

= (Consumer hours ÷ Total number of hours × Server network cost) + (Consumer hours ÷ Total number of hours × remaining cost)

= (100,000 ÷ 240,000 × $1,700,.000) + (330,000 ÷ 600,000 × $700,000)

= $708,333.33 + $385,000

= $1,093,333

The total number of hours is

= 60,000 + 80,000 + 100,000

= 240,000

The total number of hours is

= 120,000 + 150,000 + 330,000

= 600,000

And, the remaining cost is

= $2,400,000 - $1,700,000

= $700,000

We simply applied the above formula