Question

Saylind Molding paid $280,000 in rent for the year. The company's three departments are Headrests, Armrests, and Floor Mats. The number of employees working in each department includes 60 in the Headrest Department, 30 in the Armrest Department and 110 in Floor Mats Department. The Headrest Department occupies 5,000 square feet of space; the Armrest Department occupies 6,300 square feet and the Floor Mats Department occupies 2,700 square feet. What is the most appropriate cost driver (allocation base) for allocating the $280,000 rental cost to each of the departments.

Answer 1

square feet will be the better allocation giving this result:

Headrest: 100,000

Armrests: 126,000

Floor Mats: 54,000

Step-by-step explanation:

As the rent is a cost associate with the building the better cost driver will be the square feet. This, will incentivize the efficient use of the place.

The cost for each department under this method will be as follow:

280,000 total cost / ( 5,000 + 6,300 + 2,700 = 14,000 feet) = 20 dollars

Headrest: 5,000 x 20 = 100,000

Armrests: 6,300 x 20 = 126,000

Floor Mats: 2,700 x 20 = 54,000