Tenet Engineering, Inc. operates two user divisions as separate cost objects. To

Question

Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred: Computer services (85% fixed) Building occupancy Personnel costs Total common costs 278,000 641,000 14,000 $1,033,000 The following information is available concerning various activity measures and service usages by each of the divisions: Division ADivision B 44,000 $ 190,000 Area occupied (square feet) Payroll Computer time (hours) Computer storage (megabytes) Equipment value Operating profit (pre-allocations) 22,000 $390,000 270 4,650 $237000 $652,500 290 $ 287,000 $592,500 If all common costs are allocated using operating profit as the allocation basis, what is the total cost allocated to Division B? O $491,608 $652,50o O $1.219,398. O $541.392

Explanation / Answer

A. $491,608

The total cost allocated to Division B is:

= $1,033,000 × ($592,500/1,245,000)

= $491,608

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