Two entities, Burch Company and Carey Company, share a common warehouse facility.Total costs for the facility are budgeted at $1,000,000.Accountants have estimated that if Burch 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 Burch and Carey if the incremental allocation method is used?
A)$0; $700,000
B)$0; $1,000,000
C)$198,000; $802,000
D)$300,000; $700,000
E)$700,000; $300,000

Question

Quizplus · Accepted Answer

The incremental allocation method assigns the cost that would be saved if one entity did not use the facility to that entity. Since Burch's absence would reduce costs by 30%, or $300,000, this amount is allocated to Burch, leaving $700,000 for Carey.

Two Entities, Burch Company and Carey Company, Share a Common