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?
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

The incremental allocation method assigns the cost that would be avoided if one entity did not use the facility to that entity. If Cooper did not use the facility, costs would be reduced by 30%, which is $600,000. Therefore, $600,000 is allocated to Cooper and the remaining $1,400,000 to Magic.

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