Question

Pepper Department store allocates its service department expenses to its various operating (sales) departments. The following data is available for its service departments:

Expense Basis for allocation Amount
Rent Square feet of floor space $ 29,000
Advertising Amount of dollar sales $ 35,000
Administrative Number of employees $ 50,000

The following information is available for its three operating (sales) departments:

Department Square Feet Dollar Sales Number of employees
A 3,000 $ 230,000 5
B 4,500 $ 345,000 7
C 7,500 $ 575,000 8
Totals 15,000 $ 1,150,000 20


What is the total expense allocated to Department B?
Answer choice
A. $30,614.
B. $36,368.
C. $36,400.
D. $36,614.
E. $36,700.

Answer 1

Answer:

Department B= $34,200

Explanation:

The following information is available for its three operating (sales) departments:

Department Square Feet

A 3,000

B 4,500

C 7,500

Totals 15,000

First, we need to calculate the predetermined service department allocation rate:

predetermined service department allocation rate= total estimated costs for the period/ total amount of allocation base

predetermined service department allocation rate= (29,000 + 35,000 + 50,000) / 15,000

predetermined service department allocation rate= 114,000 / 15,000

predetermined service department allocation rate= $7.6 per square feet

Now, we can allocate costs to department B:

Department B= 7.6*4,500

Department B= $34,200