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 13,700 20,600 34,300 Revenues $ 1,850,000 $ 1,840,000 $ 3,690,000 Engineering hours 9,575 7,575 17,150 Engineering cost $ 734,000 $ 852,375 $ 1,586,375 Administrative costs $ 1,269,100 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 9,575 7,575 17,150 Users 13,700 20,600 34,300 Engineering-hour related administrative cost $ 171,500 User-related administrative cost $ 1,097,600 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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		13,700			20,600		34,300
Revenues	$	1,850,000		$	1,840,000	$	3,690,000
Engineering hours		9,575			7,575		17,150
Engineering cost	$	734,000		$	852,375	$	1,586,375
Administrative costs						$	1,269,100

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		9,575		7,575		17,150
Users		13,700		20,600		34,300
Engineering-hour related administrative cost					$	171,500
User-related administrative cost					$	1,097,600

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?

### Cost Allocation Assessment Using a Two-Stage Allocation System

#### Services Information:
| | Toot! | TiX | Total |
|-------------|-------------|-------------|-----------|
| Users | 13,700 | 20,600 | 34,300 |
| Revenues | $1,850,000 | $1,840,000 | $3,690,000|
| Engineering hours | 9,575 | 7,575 | 17,150 |
| Engineering cost | $734,000 | $852,375 | $1,586,375|
| Administrative costs | | | $1,269,100|

#### Proposed Allocation Bases:
The company is considering using a two-stage cost allocation system and wants to assess the effects on reported product profitability using Engineering Hours and Users as the allocation base.

#### Additional Allocation Information:
| | Toot! | TiX | Total |
|-------------|--------------|-------------|------------|
| Engineering hours | 9,575 | 7,575 | 17,150 |
| Users | 13,700 | 20,600 | 34,300 |
| Engineering-hour related administrative cost | | | $171,500 |
| User-related administrative cost | | | $1,097,600 |

### Required:
**a. Compute the predetermined overhead rate used to apply the two administrative costs pools to the two services assuming 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?**

Complete this question by entering your answers in the tabs below:

#### Required A

#### Required B

Based on the rates computed in requirement (a), what is the profit for each service? *(Do not round intermediate calculations.)*

| Service | Profit |
|-----------|----------------|
| Toot! | |
| TiX | |

**Social Media, Inc. (SMI) Services Assessment**

Social Media, Inc. (SMI) offers two distinct services: Toot!, a platform connecting tutors with students seeking tutoring services, and TiX, a service for buying, selling, or exchanging event tickets. Below are the expected results for the upcoming year.

| **Service** | **Toot!** | **TiX** | **Total** |
|-----------------|-----------|-----------|--------------|
| **Users** | 13,700 | 20,600 | 34,300 |
| **Revenues** | $1,850,000| $1,840,000| $3,690,000 |
| **Engineering hours** | 9,575 | 7,575 | 17,150 |
| **Engineering cost** | $734,000 | $852,375 | $1,586,375 |
| **Administrative costs** | | | $1,269,100 |

### Two-Stage Cost Allocation System

The company is considering a two-stage cost allocation system to better understand the effects on reported product profits. The proposed system uses Engineering Hours and Users as allocation bases. Additional details are provided below.

| **Service** | **Toot!** | **TiX** | **Total** |
|-----------------|-----------|-----------|--------------|
| **Engineering hours** | 9,575 | 7,575 | 17,150 |
| **Users** | 13,700 | 20,600 | 34,300 |
| **Engineering-hour related administrative cost** | | | $171,500 |
| **User-related administrative cost** | | | $1,097,600 |

### Required Calculations

**a. Compute the predetermined overhead rate to apply the two administrative cost pools to the two services using the proposed two-stage cost system to allocate administrative costs.**

**b. Based on the rates computed in requirement (a), determine the profit for each service.**

### Calculation Table

| **Cost Pool** | **Predetermined Overhead Rate** |
|---------------------------------------------|----------------------------------|
| **Engineering-hour related administrative cost** | $ per engineering-hour |
| **User-related administrative cost** | $ per user |

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