The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $20,000,000 bond issuance, the electric mixer division used $14,000,000 and the electric lamp division used $6,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year. What amount of interest costs should be allocated to the electric lamp division? (Po
The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $20,000,000 bond issuance, the electric mixer division used $14,000,000 and the electric lamp division used $6,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year. What amount of interest costs should be allocated to the electric lamp division? (Po
The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $20,000,000 bond issuance, the electric mixer division used $14,000,000 and the electric lamp division used $6,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year. What amount of interest costs should be allocated to the electric lamp division? (Po
here the total amount of bond issuance = 20 million dollars
the amount allocated to mixer division = 14 million dollars
the amount allocated to lamp divison = 6 million dollars.
So, the interest cost allocation will be in the ratio of allocation of bond issuance amount.
Let the interest cost of mixer divison be Rm and interest cost of lamp divison be Rl.
and Rm + Rl = 1.5 million dollars.
and Rm: Rl = 14 million ; 6 million
=> Rm: Rl = 7:3
Therefore Rm = 7Rl/3
now we substitute Rm in the equation Rm + Rl = 1.5 million dollars.
=> 7Rl/3 + Rl = 1.5 million dollars
=> R;(1+7/3) = 1.5 million dollars.
=> R;(10/3) = 1.5 million dollars.
Rl= 3*1.5 million dollars/10
Rl= 450,000 dollars.
Therefore the interest cost that should be allocated to electric lamp divison is $450,000
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