(15 min) Alternative service-cost allocation bases

10.21
a. Wire-service hours

TV Station 300 x $200,000 = $80,000

300 + 450

Radio 450 x $200,000 = $120,000

Station 300 + 450

Check: $200,000 = $80,000 + $120,000

b. Hours of news broadcasts

TV Station 100 x $200,000 = $35,714

100 + 460

Radio 460 x $200,000 = $164,286

Station 100 + 460

Check: $200,000 = $35,714 + $164,286

c. Allocation by wire service hours increases the allocation of costs to the TV station.
Use of hours of news broadcast as a basis increases the allocation of costs to the
radio station. The choice of allocation methods will impact the profitability of each
station (TV and radio). If managers are paid a bonus based on profits of their
respective stations, the choice of method will certainly affect these bonuses.