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 $ 30,000
Advertising Amount of dollar sales 36,000
Administrative Number of employees 51,000

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


Department Square Feet Dollar Sales Number of employees
A 3,200 $ 236,000 5
B 4,800 $ 354,000 7
C 8,000 $ 590,000 8
Totals 16,000 $ 1,180,000 20

What is the total expense allocated to Department B?

Answer 1

To allocate the expenses to Department B, we first need to determine the allocation rates for each of the service departments:

- Rent: $30,000 / 16,000 sq ft = $1.875 per sq ft
- Advertising: $36,000 / $1,180,000 = 0.03 per dollar of sales
- Administrative: $51,000 / 20 employees = $2,550 per employee

Using these allocation rates, we can allocate the expenses to each department:

- Department A: (3,200 sq ft x $1.875/sq ft) + ($236,000 x 0.03) + (5 employees x $2,550/employee) = $6,000 + $7,080 + $12,750 = $25,830
- Department B: (4,800 sq ft x $1.875/sq ft) + ($354,000 x 0.03) + (7 employees x $2,550/employee) = $9,000 + $10,620 + $17,850 = $37,470
- Department C: (8,000 sq ft x $1.875/sq ft) + ($590,000 x 0.03) + (8 employees x $2,550/employee) = $15,000 + $17,700 + $20,400 = $53,100

Therefore, the total expense allocated to Department B is $37,470.