Question

Advertising department expenses of $24,000 and purchasing department expenses of $34,000 of Cozy Bookstore are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. Information about the allocation bases for the three operating departments follows.

Department Sales Purchase orders
Books $495,000 516
Magazines 198,000 360
Newspapers 207,000 324
Total $900,000 1,200
Allocate the expenses of the two service departments (advertising and purchasing) to the three operating departments and create an Expense Allocation sheet for the Cozy Bookstore

Answer 1

Cozy Bookstore

Expense Allocation Sheet

Advertising Purchasing Books Magazines Newspapers Total

Service Department

Expenses $24,000 $34,000 $58,000

Advertising $13,200 $5,280 $5,520 ($24,000)

Purchasing 14,620 10,200 9,180 (34,000)

Step-by-step explanation:

a) Data and Calculations:

Allocation Bases:

Department Sales Purchase orders

Books $495,000 516

Magazines 198,000 360

Newspapers 207,000 324

Total $900,000 1,200

Expense Allocation Sheet

Advertising Purchase Books Magazines Newspapers Total

Sales $495,000 $198,000 $207,000 $900,000

Purchase orders 516 360 324 1,200

Service Department

Expenses $24,000 $34,000

Advertising $13,200 $5,280 $5,520 $24,000

Purchasing 14,620 10,200 9,180 34,000

Total service department cost $27,820 $15,480 $14,700 $58,000

Advertising:

Books = $13,200 ($24,000 * 495/900)

Magazines = $5,280 ($24,000 * 198/900)

Newspapers = $5,520 ($24,000 * 207/900)

Total = $24,000

Purchasing:

Books = $14,620 ($34,000 * 516/1,200)

Magazines = $10,200 ($34,000 * 360/1,200)

Newspapers = $9,180 ($34,000 * 324/1,200)

Total = $34,000