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Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students...

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Accounting

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 16,700 23,100 39,800 Revenues $ 2,100,000 $ 2,240,000 $ 4,340,000 Engineering hours 10,950 8,950 19,900 Engineering cost $ 985,875 $ 1,103,625 $ 2,089,500 Administrative costs $ 1,671,600

The company is considering using a two-stage cost allocation system and wants to assess the effects on reported product profits.

The company is considering using Engineering Hours and Users as the allocation base. Additional information follows.

Toot! TiX Total Engineering hours 10,950 8,950 19,900 Users 16,700 23,100 39,800 Engineering-hour related administrative cost $ 218,900 User-related administrative cost $ 1,452,700

a. Compute the predetermined overhead rate used to apply the two administrative costs pools to the two services assuming SMI uses the proposed two-stage cost systemto allocate administrative costs.

b. Based on the rates computed in requirement (a), what is the profit for each service?

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