Question

Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period:

Office Expenses Total Allocation Basis
Salaries $54,000 Number of employees
Depreciation 36,000 Cost of goods sold
Advertising 70,000 Net sales

Item Drilling Grinding Total
Number of employees 2,000 3,000 5,000
Net sales $390,000 $585,000 $975,000
Cost of goods sold $148,200 $241,800 $390,000
The amount of salaries that should be allocated to Grinding for the current period is:
a. $22,320
b. $32,400
c. $54,000
d. $11,800
e. $18,000

Answer 1

Marks Corp has Drilling & Grinding departments. To find Grinding's salary allocation, use its 60% employee share (3,000 out of 5,000 total) to multiply the $54,000 total office salaries. Correct answer: b. $32,400.

The correct answer is b. $32,400.

Here's how to calculate it:

Identify the relevant information: We need to find the salaries allocated to the Grinding department. We know the total office expenses for salaries are $54,000 and the allocation basis is the number of employees.

Calculate the proportion of employees in Grinding: There are 3,000 employees in Grinding out of a total of 5,000 employees (2,000 + 3,000). This means the Grinding department represents 60% of the workforce (3,000 / 5,000 = 0.6).

Allocate salaries based on the proportion: Multiply the total salaries by the proportion of employees in Grinding: $54,000 * 0.6 = $32,400.

Therefore, $32,400 should be allocated to the Grinding department for salaries based on the provided information.

The other options are incorrect because:

• a. $22,320: This underestimates the amount allocated to Grinding as it uses only half of the actual employee proportion (0.3 instead of 0.6).
• c. $54,000: This represents the total amount for salaries, not the allocation to Grinding.
• d. $11,800: This underestimates the amount allocated to Grinding as it uses a quarter of the actual employee proportion (0.25 instead of 0.6).
• e. $18,000: This is an arbitrary number and doesn't align with the provided information or calculation.