Answer the following questions using the information below:
The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $13,000,000 bond issuance, the Electric Mixer Division used $9,100,000 and the Electric Lamp Division used $3,900,000 for expansion. Interest costs on the bond totaled $975,000 for the year.
-What amount of interest costs should be allocated to the Electric Mixer Division?
A) $292,500
B) $682,500
C) $9,100,000
D) $2,730,000

Question

Quizplus · Accepted Answer

The interest cost allocation should be based on the proportion of funds used by each division. The Electric Mixer Division used 70% ($9,100,000/$13,000,000) of the funds and the Electric Lamp Division used 30% ($3,900,000/$13,000,000) of the funds. Therefore, the Electric Mixer Division should be allocated 70% of the interest costs, which is $682,500 ($975,000 x 70%).

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