Salem Company allocates the estimated $185,000 of its accounting department cost

Question

Salem Company allocates the estimated $185,000 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable functions. The costs will be allocated based on the number of employees using the direct method. Information regarding costs and employees follows:

Department

Employees

Accounting

5

Production

27

Sales

11

How much of the accounting department costs will be allocated to the production?

Department

Employees

Accounting

5

Production

27

Sales

11

Explanation / Answer

Total costs of accounting department: $185,000

In Direct method the costs are only allocated to the production department even if other service departments are using the services.

Hence production department will be allocated $185,000 of accounting department cost.

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