Question
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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.
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