The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $8,000,000 to maintain its railroad track. Pertinent data for the two divisions are as follows: Total Miles Traveled:
The amount of track improvement cost that should be allocated to the Western Division is: (Do not round intermediate calculations.)
A) $4,000,000.
B) $3,200,000.
C) $800,000.
D) $5,333,333.

Question

The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $8,000,000 to maintain its railroad track. Pertinent data for the two divisions are as follows: Total Miles Traveled:
 The amount of track improvement cost that should be allocated to the Western Division is: (Do not round intermediate calculations.)
A) $4,000,000. 
B) $3,200,000. 
C) $800,000. 
D) $5,333,333.

Quizplus · Accepted Answer

Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base)
Allocation rate = $8,000,000 ÷ (800,000 miles + 1,200,000 miles) = $8,000,000 ÷ 2,000,000 miles = $4 per mile
Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object
Allocation to Western Division = $4 per mile × 800,000 miles = $3,200,000

The Western and Pacific Railroad Has Two Divisions, the Western