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Admin overhead costs are allocated based on each department’s revenues, what is the allocation rate? Engineering...

Admin overhead costs are allocated based on each department’s revenues, what is the allocation rate? Engineering costs are to be allocated based on sq ft, what is the allocation rate? How much of the Admin & Engineer costs would be allocated to cancer & how much to pharmacy? What would be the total profit for cancer and pharmacy?

Cancer

Rev - $700,000

Exp - $250,000

Sq Ft - 2,500

Pharmacy

Rev - $300,000

Exp - $125,000

Sq Ft - 1,000

Overhead Costs

Admin - $40,000

Engineering - $60,000

Solutions

Expert Solution

Admin cost allocation rate = Total Admin costs/ Total Revenue
= 40000/(700,000+300,000)
= $0.04 per $
Engineering cost allocation rate = Total engineering costs/ Total Sft
= 60,000/(2,500+1000)
=$17.143 per Sft
Allocation of overhead cost
Activity Cost Pools Allocation Rate Cancer Pharmacy
Activity Overhead cost allocated Activity Overhead cost allocated
Admin 0.04 per $ 700,000 $ of revenue       28,000 300,000 $ of revenue       12,000
Engineering 17.143 per Sft       2,500 Sft       42,858       1,000 Sft       17,143
Amount of Overhead allocated       70,858        29,143
Cancer Pharmacy
Revenue        700,000      300,000
Expenses        250,000      125,000
Overhead cost
Admin           28,000         12,000
Engineering           42,858         17,143
Total profit        379,143      145,857

Note: Due to round of enginerring cost per sft to 3 decimals, there difference of $1 in engineering costs same can be adjusted from any of the profits.

jeff jeffy answered 1 year ago
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