Question

2. Woh Che Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.

Indirect Expense		Cost	Allocation Base
Supervision	$	83,900	Number of employees
Utilities		64,000	Square feet occupied
Insurance		29,500	Value of assets in use
Total	$	177,400

Departmental data for the company’s recent reporting period follow.

Department	Employees				Square Feet				Asset Values
Materials		35				47,250				$	14,800
Personnel		7				13,500					4,440
Manufacturing		63				60,750					37,000
Packaging		35				13,500					17,760
Total		140				135,000				$	74,000

1. Use this information to allocate each of the three indirect expenses across the four departments.
2. Prepare a summary table that reports the indirect expenses assigned to each of the four departments.

3.

Advertising department expenses of $60,100 and purchasing department expenses of $43,000 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	$	163,800			984
Magazines		97,500			648
Newspapers		128,700			768
Total	$	390,000			2,400

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

Answer 1

1)
		Allocation Base		Percent of Allocation Base			*indirect	Allocated cost
Supervision expenses							cost
Department		Number of employees		numerator	Denominator	% of total
Materials		35		35	140	25%	83,900	20975
Personnel		7		7	140	5%	83,900	4195
Manufacturing		63		63	140	45%	83,900	37755
Packaging		35		35	140	25%	83,900	20975
totals		140						83900
Utilities		Allocation Base		Percent of Allocation Base			*indirect	Allocated cost
Department		Square Feet occupied		numerator	Denominator	% of total
Materials		47,250		47,250	135,000	35%	64,000	22400
Personnel		13,500		13,500	135,000	10%	64,000	6400
Manufacturing		60,750		60,750	135,000	45%	64,000	28800
Packaging		13,500		13,500	135,000	10%	64,000	6400
totals		135,000						64000
Insurance		Allocation Base		Percent of Allocation Base			*indirect	Allocated cost
Department		Value of assets in use		numerator	Denominator	% of total
Materials		14,800		14,800	74,000	20%	29,500	5900
Personnel		4,440		4,440	74,000	6%	29,500	1770
Manufacturing		37,000		37,000	74,000	50%	29,500	14750
Packaging		17,760		17,760	74,000	24%	29,500	7080
totals		74,000						29500
2)
		Supervision	Utilities	Insurance	Total
Materials		20975	22400	5900	49275
Personnel		4195	6400	1770	12365
Manufacturing		37755	28800	14750	81305
Packaging		20975	6400	7080	34455
totals		83900	64000	29500	177400