Question

Bartolo Delivery has two divisions, air express and ground service, that share the common costs of the company’s communications network, which are $8,900,000 a year. You have the following information about the two divisions and the common communications network:

Air Express: 623,000 (Calls, thousands), 355,000 (time on network, hours)

Ground Service: 267,000 (Calls, thousands), 1,065,000 (time on network, hours

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Bartolo Delivery has two divisions, air express and ground service, that share the common costs of the company’s communications network, which are $8,900,000 a year. You have the following information about the two divisions and the common communications network:

	Calls (thousands)			Time on Network (hours)
Air express		623,000			355,000
Ground service		267,000			1,065,000

Required:

a. What is the communications network cost that is charged to each division if the number of calls is used as the allocation basis? (Do not round intermediate calculations.)

b. What is the communications network cost to each division using time on network as the allocation basis?(Do not round intermediate calculations.)

Answer 1

a. What is the communications network cost that is charged to each division if the number of calls is used as the allocation basis?

Allocation rate = Total commumication network cost/Total number of calls

                     = 8900000/(623000000+267000000)

Allocation rate = 0.01 per number of calls

	Allocated cost
Air express (623000000*.010)	6230000
Ground service (267000000*.010)	2670000
Total communication network cost	8900000

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

Allocation rate = Total commumication network cost/Total Times of network (hours)

                     = 8900000/(355000+1065000)

Allocation rate = 6.26761 per hour

	Allocated cost
Air express (355000*6.26761)	2225000
Ground service (1065000*6.26761)	6675000
Total communication network cost	8900000