Cincinnati Million, Inc. operates two user divisions as separate cost objects. T

Question

Cincinnati Million, 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:

  

       

The following information is available concerning various activity measures and service usages by each of the divisions:

    

   

If all common costs are allocated using operating profit as the allocation basis, what is the total cost allocated to Division B?

  Computer services (85% fixed) $274,000   Building occupancy 614,000   Personnel costs 124,000   Total common costs $1,012,000

Explanation / Answer

Total common cost          1,012,000 Operating Profit : Division A              569,000 Division B              509,000 TOTAL          1,078,000 total cost allocated to Division B        477,836.73 (total common cost*Division B's operating profit/total operating profit (1012000*509000/1078000)

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