Two entities, Cooper Company and Magic Company, share a common warehouse facility.Total costs for the facility are budgeted at $2,000,000.Accountants have estimated that if Cooper Company did not use the facility the cost incurred would be reduced by 30 percent.What amount of the budgeted cost should be allocated, respectively, to Cooper and Magic if the incremental allocation method is used? Assume that Magic is he primary party.
A)$0; $1,400,000
B)$0; $2,000,000
C)$1,400,000; $600,000
D)$700,000; $1,300,000
E)$600,000; $1,400,000

Question

Quizplus · Accepted Answer

Under the incremental allocation method, the primary party (Magic) is allocated the full cost of the facility, and the incremental cost is allocated to the secondary party (Cooper). Since Cooper's absence would reduce costs by 30%, Cooper is allocated 30% of $2,000,000, which is $600,000, and Magic is allocated the remaining $1,400,000.

Two Entities, Cooper Company and Magic Company, Share a Common