Social Media, Inc. (SMI) has two services for users. Toot!, which connects t 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 17,900 24,100 42,000
Revenues $ 2,200,000 $ 2,400,000 $ 4,600,000
Engineering hours 11,500 9,500 21,000
Engineering cost $ 1,096,250 $ 1,213,750 $ 2,310,000
Administrative costs $ 1,848,000
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 11,500 9,500 21,000
Users 17,900 24,100 42,000
Engineering-hour related administrative cost $ 239,400
User-related administrative cost $ 1,608,600
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.
Predetermined Overhead Rate
Engineering-hour related administrative cost per engineering-hour
User-related administrative cost per user
b. Based on the rates computed in requirement (a), what is the profit for each service?
Service Profit
Toot!
TiX