In: Accounting
Three segments (X, Y and Z) of Truly Company have net sales of $ 200,000, $ 75,000, and $ 125,000, respectively. A decision is made to allocate the pool of $ 30,000 of administrative overhead expenses of the home office to the segments, using net sales as the basis for allocation.
How much of the $30,000 should be allocated to each segment?
| Step-1:Calculation of total net sales | |||||||||
| Segment | X | Y | Z | Total | |||||
| Net Sales | $ 2,00,000 | $ 75,000 | $ 1,25,000 | $ 4,00,000 | |||||
| Step-2:Calculation of allocation of administrative overhead expenses to each segment | |||||||||
| Allocation of administrative overhead expenses to segment: | |||||||||
| X | $ 30,000 | x | $ 2,00,000 | / | $ 4,00,000 | = | $ 15,000 | ||
| Y | $ 30,000 | x | $ 75,000 | / | $ 4,00,000 | = | $ 5,625 | ||
| Z | $ 30,000 | x | $ 1,25,000 | / | $ 4,00,000 | = | $ 9,375 | ||
| Total | $ 30,000 | ||||||||
| Thus, | |||||||||
| Allocation of administrative overhead expenses to segment: | |||||||||
| X | $ 15,000 | ||||||||
| Y | $ 5,625 | ||||||||
| Z | $ 9,375 | ||||||||
| Total | $ 30,000 | ||||||||