Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year: The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections.The remaining costs should be allocated based on the time on the network.What is total server network costs allocated to the Consumer Division,assuming the company uses dual-rates to allocate common costs?
A)$1,200,000.
B)$1,093,333.
C)$954,896.
D)$750,000.

Question

Fenway Telcom has three divisions,commercial,retail,and consumer,that share the common costs of the company's computer server network.The annual common costs are $2,400,000.You have been provided with the following information for the upcoming year:  The cost accountant determined $1,700,000 of the server network's costs were fixed and should be allocated based on the number of connections.The remaining costs should be allocated based on the time on the network.What is total server network costs allocated to the Consumer Division,assuming the company uses dual-rates to allocate common costs?
A)$1,200,000. 
B)$1,093,333. 
C)$954,896. 
D)$750,000.

Quizplus · Accepted Answer

To use dual-rates, we need to allocate the fixed costs based on the number of connections, and the variable costs based on the time on the network.
Fixed costs allocated to consumer division = $1,700,000 x (150,000/500,000) = $510,000
Variable costs allocated to consumer division = ($2,400,000 - $1,700,000) x (30,000/200,000) = $583,333
Total server network costs allocated to consumer division = $510,000 + $583,333 = $1,093,333. 
Therefore, the best choice is B.

Fenway Telcom Has Three Divisions,commercial,retail,and Consumer,that Share the Common Costs