Required: a. Compute the predetermined overhead rate used to apply the two administrative costs pools to the two services assuming SMI uses the proposed two-stage cost system to allocate administrative costs. b. Based on the rates computed in requirement (a), what is the profit for each service?
Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results.
| Toot! | TiX | Total | |||||||
| Users | 9,500 | 17,100 | 26,600 | ||||||
| Revenues | $ | 1,500,000 | $ | 1,280,000 | $ | 2,780,000 | |||
| Engineering hours | 7,650 | 5,650 | 13,300 | ||||||
| Engineering cost | $ | 439,125 | $ | 558,375 | $ | 997,500 | |||
| Administrative costs | $ | 798,000 | |||||||
The company is considering using a two-stage cost allocation system and wants to assess the effects on reported product profits.
The company is considering using Engineering Hours and Users as the allocation base. Additional information follows.
| Toot! | TiX | Total | |||||||
| Engineering hours | 7,650 | 5,650 | 13,300 | ||||||
| Users | 9,500 | 17,100 | 26,600 | ||||||
| Engineering-hour related administrative cost | $ | 114,380 | |||||||
| User-related administrative cost | $ | 683,620 | |||||||
Required:
a. Compute the predetermined
b. Based on the rates computed in requirement (a), what is the profit for each service?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
