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:

	Calls (thousands)			Time on Network (hours)
Air express		588,000			340,000
Ground service		252,000			1,020,000

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

common costs of the company’s communications network = $8,900,000

Total Number Of Calls = Air Express + Ground Service

= 588,000 + 252,000

= 840,000

Cost of Communication Network Per Calls = common costs of the company’s communications network / Total Number Of Calls

= $ 8,900,000 / 840,000

= $ 10.5952 Per Calls

Cost Allocation to Air Express= Air Express Calls * Cost of Communication Network Per Calls

= 588,000 * $ 10.5952

= $ 6,230,000

Cost Allocation of Ground Service = Ground Service Calls * Cost of Communication Network Per Calls

= 252000 * $ 10.60

= $ 2,670,000

B. communications network cost to each division using time on network as the allocation basis.

common costs of the company’s communications network = $8,900,000

Total Number Of time in Network (Hours) = Air Express + Ground Service

= 340,000 + 1,020,000

= 1,360,000

Cost of Communication Network Per time in Network (Hours) = common costs of the company’s communications network / Total Number Of time in Network (Hours)

= $ 8,900,000 / 1,360,000

= $ 6.6441 Per Calls

Cost Allocation to Air Express= Air Express time in Network (Hours) * Cost of Communication Network Per time in Network (Hours)

= 340,000 * $ 6.6441

= $ 2,225,000

Cost Allocation of Ground Service = Ground Service time in Network (Hours) * Cost of Communication Network Per time in Network (Hours)

= 1,020,000 * $ 10.60

= $ 6,675,000