Sasha Company allocates the estimated $199,300 of its accounting department cost

Question

Sasha Company allocates the estimated $199,300 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 39
Sales 10

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

Explanation / Answer

Total Employees except accounting = 39+10 = 49 (Direct method ignores the service provided by accounting dept to accounting dept employees itself)

Allocation to production = 39/49 * 199300 = $158,626.53

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