Problem 6-58 (Algo) Predetermined Rates and Product Profitability: Two Stage Cost Allocation (LO 6-3, 4,5) Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors 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. Users Revenues Engineering hours Engineering cost Administrative costs Toot! 9,000 $1,350,000 12,000 Tix 14,750 $1,475,000 8,000 Total 23,750 $2,825,000 20,000 $ 240,000 $ 387,750 $ 627,750 $ 527,750 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. Engineering hours Toot! 12,000 Tix 8,000 Users 9,000 14,750 Total 20,000 23,750 Engineering-hour related administrative cost User-related administrative cost $ 140,000 $ 387,750 SMI thought that maybe there should be three types of administrative costs. They felt that some of the costs in the User-related pool were more related to revenue than to users. Specifically, they revised their breakdown of administrative costs as follows.