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:

   
Using the most appropriate allocation basis, what is the personnel cost allocated to Division A?

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

The most appropriate allocation basis is payroll, based on which the cost allocated to Division A is calculated as follows:

= (122000 / (392000 + 192000)) x 392000

= $81890.411

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