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?

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:

Explanation / Answer

Divison A Division B Total Operating profit (pre-allocation) $570,000 $510,000 $1,080,000 Total common cost $1,015,000 Total cost allocated to Division B on the basis of operating profit Total common cost*Division B profit/Total opearting profit $1015000*510000/1080000 $479,305.56 $479,306 round off

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