Question

Advertising department expenses of $48,200 and purchasing department expenses of $40,200 of Cozy Bookstore are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. Information about the allocation bases for the three operating departments follows.
  

Department	Sales			Purchase Orders
Books	$	167,700			1,232
Magazines		89,700			756
Newspapers		132,600			812
Total	$	390,000			2,800

  
Complete the following table by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.

Answer 1

Advertising department expenses will allocate based on sales and purchasing department expenses will allocate based on purchase orders

Departments	Advertising department expenses	Purchasing department expenses
Books	$48,200/$390,000*$167,700 = $20,726	$40,200/2,800*1,232 = $17,688
Magazines	$48,200/$390,000*$89,700 = $11,086	$40,200/2,800*756 = $10,854
Newspapers	$48,200/$390,000*$132,600 = $16,388	$40,200/2,800*812 = $11,658
Total	$                                                               48,200	$                                                         40,200