Question

Bartolo Delivery has two divisions, air express and ground service, that share the common costs of the company's communications network, which are $8,600,000 a year. You have the following information about the two divisions and the common communications network. Calls (thousands) 567,000 243,000 Time on Network (hours) 365,000 1,095,000 Air express Ground service 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? b. What is the communications network cost to each division using time on network as the allocation basis?

Answer 1

Communications network cost = $8,600,000

Calls by Air express = 567,000 thousands

Calls by Ground service = 243,000 thousands

Total calls = Calls by Air express + Calls by Ground service

= 567,000+243,000

= 810,000 thousands

Communications network cost per call = Communications network cost/Total calls

= 8,600,000/810,000

= $0.01.6172839506

Network cost allocated to Air express = Calls by Air express x Communications network cost per call

= 567,000,000 x 0.01.6172839506

= $6,020,000

Network cost allocated to Ground service = Calls by Ground service x Communications network cost per call

= 243,000,000 x 0.01.6172839506

= $2,580,000

Division	Network cost
Air express	$6,020,000
Ground service	$2,580,000

Communications network cost = $8,600,000

Time on network by Air express = 365,000

Time on network by Ground service = 1,095,000

Total time on network = Time on network by Air express + Time on network by Ground service

= 365,000+1,095,000

= 1,460,000 hours

Communications network by hour = Communications network cost/Total time on network

= 8,600,000/1,460,000

= $5.8904109589041

Network cost allocated to Air express =Time on network by Air express x Communications network by hour

= 365,000 x 5.8904109589041

= $2,150,000

Network cost allocated to Ground service = Time on network by Ground service x Communications network by hour

= 1,095,000 x 5.8904109589041

= $6,450,000

Division	Network cost
Air express	$2,150,000
Ground service	$6,450,000

Kindly comment if you need further assistance. Thanks‼!