Question

Bartolo Delivery has two divisions, air express and ground service, that share the common costs of the company’s communications network, which are $8,000,000 a year. You have the following information about the two divisions and the common communications network:

	Calls (thousands)			Time on Network (hours)
Air express		525,000			365,000
Ground service		225,000			1,095,000

Required:

Determine the cost allocation if $5.60 million of the communications network costs are fixed and allocated on the basis of time on network, and the remaining costs, which are variable, are allocated on the basis of the number of calls. (Do not round intermediate calculations. Enter your answers in thousands of dollars.)

Answer 1

Answer

• Working

Total Cost	$                8.00	millions
Less: Fixed Cost	$                5.60	millions
Variable Cost	$                2.40	millions

	Calls	Time on Net Work
Corporate	525,000	365,000
Government	225,000	1,095,000
Total	750,000	1,460,000

• Fixed Cost Allocation

Departments:	Communication Network Cost [in thousand $]	Working
Air Express	$1,680	[$ 2.40 million x 525000/750000]
Ground service	$720	[$ 2.40 million x 225000/750000]
TOTAL	$2,400

• Variable Cost Allocation

Departments:	Communication Network Cost [in thousand $]	Working
Air Express	$1,400	[$ 5.60 million x 365000/1460000]]
Ground service	$4,200	[$ 5.60 million x 1095000/1460000]]
TOTAL	$5,600