Question

The Floyd School of Vocational Technology has organized the school training programs into three departments. Each department provides training in a different area as follows: nursing assistant, dental hygiene, and office technology. The school’s owner, Joyce Floyd, wants to know how much it costs to operate each of the three departments. To accumulate the total cost for each department, the accountant has identified several indirect costs that must be allocated to each. These costs are $15,000 of phone expense, $24,000 of office supplies, $720,000 of office rent, $144,000 of janitorial services, and $150,000 of salary paid to the dean of students. To provide a reasonably accurate allocation of costs, the accountant has identified several possible cost drivers. These drivers and their association with each department follow.

Cost Driver	Nursing	Dental	Technology
Number of telephones	20	30	50
Number of faculty members	20	16	24
Square footage of office space	14,000	8,000	14,000

a) What is the amount of telephone expense that should be allocated to the Dental department?

b) What is the amount of supplies expense allocated to the Technology department?

c) What is the amount of office rent for the Dental department?

d) What amount of janitorial services cost will be allocated to the Nursing department?

Answer 1

Answer:

Phone expense is allocated on the basis of Number of telephones

Office supplies,Office rent and Janitorial services are allocated on the basis of Square footage of office space

Salaries paid is allocated on the basis of Number of faculty numbers

(a)

Telephone expense that should be allocated to the Dental department

= Expected use of Cost driver * Activity based overhead rate

= 30 * $150

= $4,500

(b)

Supplies expense allocated to the Technology department

= Expected use of Cost driver * Activity based overhead rate

= 14,000 * $0.67

= $9,380 (approximately because the activity based overhead rate is rounded off here)

(c)

Office rent for the Dental department

= Expected use of Cost driver * Activity based overhead rate

= 8,000 * $20

= $160,000

(d)

Janitorial services cost will be allocated to the Nursing department

= Expected use of Cost driver * Activity based overhead rate

= 14,000 * $4

= $56,000