Sasha Company allocates the estimated $181,700 of its accounting department cost

Question

Sasha Company allocates the estimated $181,700 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 28

Sales 20

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

Explanation / Answer

Department cost ($181700) = allocation ratio (28:20)

Department cost allocated to the production= $181700 / 48 *28 = $106000

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