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

Quizplus · Accepted Answer

Since the company is using dual-rates to allocate common costs, we need to first calculate the total cost pool for the time allocation and then separately calculate the cost pool for the connection allocation.

For time allocation:
Total costs - Fixed costs = Variable costs
$1,700,000 fixed costs have already been allocated, so variable cost = $3,400,000 - $1,700,000 = $1,700,000

For connection allocation:
Fixed costs = $1,700,000

Next, we need to calculate the allocation rates. To allocate the costs based on connections, we divide the $1,700,000 fixed costs by the number of connections:
$1,700,000 / 10,000 = $170 per connection

To allocate the costs based on time, we divide the $1,700,000 variable costs by the total hours of network usage:
$1,700,000 / 20,000 hours = $85 per hour

Now we can allocate the costs to the Consumer Division based on their usage:
For connection allocation:
500 connections x $170 per connection = $85,000

For time allocation:
15,000 hours x $85 per hour = $1,275,000

Add both allocations to get the total cost allocated to the Consumer Division:
$85,000 + $1,275,000 = $1,360,000

However, since we are using dual-rates, we need to adjust the time allocation by the fixed cost rate per hour:
$1,700,000 fixed cost / 20,000 total hours = $85 fixed cost rate per hour

Adjustment for time allocation: 
15,000 hours x $85 fixed cost rate per hour = $1,275,000 fixed costs

Adjusted total allocation: 
$85,000 + $1,275,000 + $1,700,000 fixed costs = $3,060,000

To find the allocation to Consumer Division: 
$3,060,000 * (15,000 hours / 20,000 total hours) = $2,295,000

Finally, we can exclude the fixed costs allocated based on connection since the Consumer Division did not use any connections:
$2,295,000 - $1,700,000 fixed costs allocated based on connection = $595,000

Therefore, the total server network costs allocated to the Consumer Division is $595,000 which is option B.

The Cost Accountant Determined $1,700,000 of the Server Network's Costs