Shoppers Paradise, a Wholesaler, Ships Various Products Worldwide

Multiple Choice

Shoppers paradise, a wholesaler, ships various products worldwide. Some shipments are made to an individual customer and some are made on bulk orders that are mailed to multiple addresses. The company is considering how to best allocate the cost of shipping. It has come up with three alternatives: charge based on each address processed (parcel) , charge based on the total number of requests (bulk shipments to multiple addressed would be assessed as one request) , or allocate based on operating income. Total monthly shared cost for the department is $20,000.
The following data are available:

- If Shoppers Paradise uses operating income as the allocation cost base, what amount of net income would be reported after allocating shared shipping costs to each division?

A) Hat $25,000; Shoe $70,000; Luggage $30,000; Purse $75,000
B) Hat $20,500; Shoe $66,000; Luggage $21,500; Purse $72,000
C) Hat $22,500; Shoe $63,000; Luggage $27,000; Purse $67,500
D) Hat $27,500; Shoe $77,000; Luggage $33,000; Purse $82,500