Question

Ransom Widgets allocates the estimated cost of its accounting department, $200,000, to its production and sales departments since the accounting department supports these departments with regard to payroll and accounts payable functions. The accounting department costs will be allocated based on the number of employees using the direct method. Information regarding employees follows:

Department Employees
Accounting 4
Production 36
Sales 12
How much of the accounting department costs will be allocated to the production and sales departments, respectively?
a. Production Sales
$150,000 $50,000
b. Production Sales
$180,000 $60,000
c. Production Sales
$1,800,000 $600,000
d. Production Sales
$22,222 $66,667

Answer 1

To allocate the accounting department costs, calculate the proportion of employees in each department, then multiply by the total accounting department costs.

Step-by-step explanation:

To allocate the accounting department costs based on the number of employees using the direct method, we need to determine the proportion of employees in each department relative to the total number of employees. The total number of employees is 4 (Accounting) + 36 (Production) + 12 (Sales) = 52. The proportion of employees in the Production department is 36/52 = 0.6923, and the proportion of employees in the Sales department is 12/52 = 0.2308.

To calculate the allocated costs for each department, multiply the total accounting department costs ($200,000) by the proportion of employees in each department. The allocated costs for Production department is $200,000 x 0.6923 = $138,460. The allocated costs for Sales department is $200,000 x 0.2308 = $46,160.

Answer 2

a. Production Sales

$150,000 $50,000

Step-by-step explanation:

Given that

Number of employees in Production Dept. 36

Number of employees in Sales Dept. 12

So,

Total Number of employees is

= 36 + 12

=48

Now

Cost allocated to Production Dept. is

= $200,000 × 36 ÷ 48

= $150,000.00

And, the Cost allocated to Sales Dept. is

= $200,000 × 12 ÷ 48

= $50,000.00