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

Answer rating: 100% (QA)

a To compute the predetermined overhead rate for each service we need to first calculate the total ... View the full answer