Tenet Engineering, Inc -
If Common Computer Service Costs Are Allocated Using Computer

question 67

Multiple Choice

Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred:
Computer services (85% fixed) $ 260,000
Building occupancy 600,000
Personnel costs 110,000
Total common costs $ 970,000
The following information is available concerning various activity measures and service usages by each of the divisions:
$\begin{array}{lrr}\text { Area occupied (square feet) } & 20,000 & 40,000 \\\text { Payroll } & \$ 380,000 & \$ 180,000 \\\text { Computer time (hours) } & 200 & 220 \\\text { Computer storage (megabytes) } & 4,050 & -0- \\\text { Equipment value } & \$ 200,000 & \$ 250,000 \\\text { Operating profit (pre-allocations) } & \$ 555,000 & \$ 495,000\end{array}$

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If common computer service costs are allocated using computer time as the allocation basis, what is the computer cost allocated to Division B (rounded to the nearest whole dollar) ?

• A) $136,190.
• B) $137,647.
• C) $144,444.
• D) $173,333.

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Definitions:

APC

APC, or Average Propensity to Consume, is the ratio of total consumption to total disposable income, indicating how much income is spent.

Induced Consumption

The portion of consumer spending that changes in response to changes in disposable income.

Disposable Income

The sum of funds that individuals or families can allocate towards savings or expenditure once they've deducted income taxes.

Disposable Income

The liquidity pool available for households to channel into saving and spending after income tax deductions.