Question

Saylind Molding paid $1,768,000 in rent for the year. The company's three departments are Headrests, Armrests, and Floor Mats. The accountant has identified two possible cost drivers. The number of employees in each department and the square footage of space occupied by each department. The number of employees working in each department includes 96 in the Headrest Department, 66 in the Armrest Department and 146 in Floor Mats Department. The departments occupy 23,000, 24,300, and 20,700 square feet, for Headrests, Armrests, and Floor Mats respectively. How much of the rent cost should be allocated to the products made in the Floor Mats department?

Answer 1

Using the square footage as a cost driver, the Floor Mats department should be allocated $538,240.48 of the total rent cost when considering the percentage of square footage it occupies relative to the total square footage of all departments.

Step-by-step explanation:

To allocate the rent cost to the Floor Mats department, we must consider either the number of employees or the square footage as a cost driver. Assuming that the cost driver is square footage, which is a common method for allocating rent, we would follow these steps:

1. Calculate the total square footage occupied by all departments: 23,000 sq ft (Headrests) + 24,300 sq ft (Armrests) + 20,700 sq ft (Floor Mats) = 68,000 sq ft in total.
2. Determine the percentage of total square footage occupied by the Floor Mats department: 20,700 sq ft (Floor Mats) / 68,000 sq ft (Total) = 0.30441, or 30.441%.
3. Calculate the rent allocated to the Floor Mats department by multiplying total rent by the percentage of square footage: $1,768,000 (Total Rent) * 0.30441 (Percentage) = $538,240.48.

The Floor Mats department should be allocated $538,240.48 of the rent cost.