Answer the following questions using the information below:
The Sparky Electrical Products Company has an Electric Mixer Division and an Electric Lamp Division.Of a $30 000 000 bond issue,the Electric Mixer Division used $21 000 000 and the Electric Lamp Division used $9 000 000 for expansion.Interest costs on the bond totalled $1 500 000 for the year.
-What amount of interest costs should be allocated to the Electric Mixer Division?
A)$4 300 000
B)$1 050 000
C)$450 000
D)$21 000 000

Question

Quizplus · Accepted Answer

To allocate the interest costs between the two divisions, we need to use the weighted average of the amount borrowed by each division. The proportion of the bond issue used by the Electric Mixer Division is: $21,000,000 ÷ $30,000,000 = 0.7 or 70%. The proportion used by the Electric Lamp Division is: $9,000,000 ÷ $30,000,000 = 0.3 or 30%.

To find the amount of interest costs allocated to the Electric Mixer Division, we multiply the total interest costs by the proportion borrowed by the division:

$1,500,000 x 0.7 = $1,050,000

Therefore, choice B is the correct answer.

Answer the Following Questions Using the Information Below