If the factory operations and selling and administrative offices are housed in t

Question

If the factory operations and selling and administrative offices are housed in the same building, what would be a good cost allocation basis to use in dividing the depreciation expense between the two areas? Why would it be important to make this allocation? If the factory operations and selling and administrative offices are housed in the same building, what would be a good cost allocation basis to use in dividing the depreciation expense between the two areas? Why would it be important to make this allocation?

Explanation / Answer

In this case depriciation should be allocated on the basis of FLOOR OCCUPACY(Square fit basis) of each Department .e;g if selling & distrubation dept occupies 40 % of the total building area.then depriciation will be allocated according to that

Depriciation allocation is very important because without which u cant get proper valuation of any asset of the organisation ..follwing are some of reason why dep allocation is imp

1. To ascertain the true income

2. To show the asset at its proper value:

3.To allocate the cost of fixed asset to product

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