Sasha Company allocates the estimated $195,500 of its accounting department cost

Question

Sasha Company allocates the estimated $195,500 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

4

Production

25

Sales

17

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

Department

Employees

Accounting

4

Production

25

Sales

17

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Total Employees in All the Departments Except Accounting = 25 + 17 = 42

Costs Allocated to Production = Total Accounting Costs*Employees in the Production Department/Total Employees in All the Departments (Except Accounting) = 195500*25/42 = 116369.05 or 116369.

Answer is 106250.

Thanks.

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