Question

Assigning Traceable Fixed Expenses
Selected data for Colony Company, which operates three departments, follow:

		Department A	Department B	Department C
Inventory		$60,000	$216,000	$84,000
Equipment (average cost)		$540,000	$324,000	$216,000
Payroll		$607,500	$540,000	$202,500
Square feet of floor space		27,000	13,500	4,500

During the year, the company's fixed expenses included the following:

Depreciation on equipment				$90,000
Real estate taxes				27,000
Personal property taxes (on inventory and equipment)				43,200
Personnel department expenses				45,000

Assume that the property tax rate is the same for both inventory and equipment. Using the most causally related bases, prepare a schedule assigning the fixed expenses to the three departments. Hint: Not all fixed expenses are traceable to the three departments. One of these fixed costs should be considered a common cost and not traceable to the departments.

Do not round until your final answer. Round final answer to the nearest whole number.

		Department A	Department B	Department C
Depreciation		$Answer	$Answer	$Answer
Real estate taxes		Answer	Answer	Answer
Personal property taxes		Answer	Answer	Answer
Personnel dept. expenses		Answer	Answer	Answer

Answer 1

Depreciation on equipment will be allocated to three departments on the basis of cost of equipment, real estate taxes will be allocated on the basis of Square feet of floor space and personal property taxes will be allocated on the basis of sum of inventory and equipment cost. The personnel department expenses will not be allocated and should be considered as common cost and not traceable to the departments.

Total Equipment cost = $540,000+$324,000+$216,000 = $1,080,000

Total Inventory = $60,000+$216,000+$84,000 = $360,000

Total Equipment and Inventory = $1,080,000+$360,000 = $1,440,000

Total square feet of floor space = $27,000+13,500+4,500 = 45,000

Dept. A inventory and Equipment = $60,000+$540,000 = $600,000

Dept. B inventory and Equipment = $216,000+$324,000 = $540,000

Dept. C inventory and Equipment = $84,000+$216,000 = $300,000

Allocation of Fixed Expenses (Amounts in $)

Particulars	Department A	Department B	Department C
Depreciation	$90,000*(540,000/1,080,000) = 45,000	$90,000*(324,000/1,080,000) = 27,000	$90,000*(216,000/1,080,000) = 18,000
Real Estate Taxes	$27,000*(27,000/45,000) = 16,200	$27,000*(13,500/45,000) = 8,100	$27,000*(4,500/45,000) = 2,700
Personal Property Taxes	$43,200*(600,000/1,440,000) = 18,000	$43,200*(540,000/1,440,000) = 16,200	$43,200*(300,000/1,440,000) = 9,000
Personnel dept. expenses	0	0	0