Advertising department expenses of $38,900 and purchasing department expenses of

Question

Advertising department expenses of $38,900 and purchasing department expenses of $38,900 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.

Advertising department expenses of $38,900 and purchasing department expenses of $38,900 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 Books Sales Purchase Orders 984 600 816 $ 180,000 agazines Newspapers 108,000 72,000 Total $ 360,000 2,400 Complete the following table by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments. (Amounts to be deducted should be indicated with minus sign.) Advertising Department Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost NumeratorDenominator % of Total Books Dept Magazines Dept Newspapers Dept Totals Purchasing Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Numerator Denominator % of Total Books Dept Magazines Dept Newspapers Dept Totals

Explanation / Answer

percent of Allocation base Advertising Allocation Base Numerator Denominator % of Total Cost to be allocated Allocated Cost Department Books Dept $ sales                  180,000              360,000 50.0%               38,900             19,450 Magazines Dept. $ sales                  108,000              360,000 30.0%               38,900             11,670 Newspaper Dept. $ sales                    72,000              360,000 20.0%               38,900                7,780 Totals             38,900 percent of Allocation base Purchasing Allocation Base Numerator Denominator % of Total Cost to be allocated Allocated Cost Department Books Dept $ sales                          984                   2,400 41.0%               38,900             15,949 Magazines Dept. $ sales                          600                   2,400 25.0%               38,900                9,725 Newspaper Dept. $ sales                          816                   2,400 34.0%               38,900             13,226 Totals             38,900 Cozy Bookstore Allocation of expenses to Departments Allocation Base Expense a/c bal. Adv Exense Purchasing Dept. Books Dept Magazines Dept. Newspaper Dept. Total Departmental Expenses                        555,000                    38,900                 38,900             144,300             111,000           221,900 Adv dept Sales               19,450               11,670                7,780 Purchasing Dept Pur orders               15,949                 9,725             13,226 Total expenses allocated to operating Departments                        555,000             179,699             132,395           242,906

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