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Bartolo Delivery has two divisions, air express and ground service, that share the common costs of the...

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Accounting

Bartolo Delivery hastwo divisions, air express and ground service, that share thecommon costs of the company’s communications network, which are$8,000,000 a year. You have the following information about the twodivisions and the common communications network:

Calls (thousands)Timeon Network (hours)
Air express490,000350,000
Groundservice210,0001,050,000

Required:

a.What is the communications network cost that is charged to eachdivision if the number of calls is used as the allocationbasis?

b.What is the communications network cost to each division using timeon network as the allocation basis?

Answer & Explanation Solved by verified expert
4.3 Ratings (574 Votes)

  • Working

Calls (thousands)

Time on Network (hours)

Air express

              490,000

             350,000

Ground service

              210,000

          1,050,000

Total

              700,000

          1,400,000

  • Requirement ‘a’

Divisions:

Communication network cost allocated

Working

Air express

$5,600,000

[$ 8,000,000 x 490000 calls/700000 calls]

Ground service

$2,400,000

[$ 8,000,000 x 210000 calls/700000 calls]

TOTAL

$8,000,000

  • Requirement ‘b’

Divisions:

Communication network cost allocated

Working

Air express

$2,000,000

[$ 8,000,000 x 350000 hours/1400000hours]

Ground service

$6,000,000

[$ 8,000,000 x 1050000 hours/1400000hours]

TOTAL

$8,000,000

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