Question

Woh Che Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow. Indirect Expense Supervision Utilities Insurance Total Cost Allocation Base $ 83,000 Number of employees 55,000 square feet occupied 25,000 Value of assets in use $ 163,000 Departmental data for the company's recent reporting period follow. Employees 40 8 Department Materials Personnel Manufacturing Packaging Total Square Feet 60,000 7,500 67,500 15,000 150,000 Asset Values $ 9,750 1,300 33,800 20,150 $ 65,000 64 48 160 1. Use this information to allocate each of the three indirect expenses across the four departments. 2. Prepare a summary table that reports the indirect expenses assigned to each of the four departments.

Answer 1

Solution

Supervision Expenses	Allocation base	Percent of allocation base			Cost to be allocated	Allocated cost
Department		Numerator	Denominator	% of total
Material	Number of employees	40	160	25%	$       83,000.00	$   20,750.00
Personnel	Number of employees	8	160	5%	$       83,000.00	$     4,150.00
Manufacturing	Number of employees	64	160	40%	$       83,000.00	$   33,200.00
Packaging	Number of employees	48	160	30%	$       83,000.00	$   24,900.00
Totals		160		100%		$   83,000.00
Utilities	Allocation base	Percent of allocation base			Cost to be allocated	Allocated cost
Department		Numerator	Denominator	% of total
Material	Square feet occupied	60000	150000	40%	$       55,000.00	$   22,000.00
Personnel	Square feet occupied	7500	150000	5%	$       55,000.00	$     2,750.00
Manufacturing	Square feet occupied	67500	150000	45%	$       55,000.00	$   24,750.00
Packaging	Square feet occupied	15000	150000	10%	$       55,000.00	$     5,500.00
Totals		150000		100%		$   55,000.00
Insurance	Allocation base	Percent of allocation base			Cost to be allocated	Allocated cost
Department		Numerator	Denominator	% of total
Material	Value of asset in use	$        9,750.00	65000	15%	$       25,000.00	$     3,750.00
Personnel	Value of asset in use	$        1,300.00	65000	2%	$       25,000.00	$         500.00
Manufacturing	Value of asset in use	$      33,800.00	65000	52%	$       25,000.00	$   13,000.00
Packaging	Value of asset in use	$      20,150.00	65000	31%	$       25,000.00	$     7,750.00
Totals		$      65,000.00		100%		$   25,000.00

.

	Supervision	Utilities	Insurance	Total
Material	$ 20,750	$ 22,000	$ 3,750	$ 46,500
Personnel	$ 4,150	$ 2,750	$ 500	$ 7,400
Manufacturing	$ 33,200	$ 24,750	$ 13,000	$ 70,950
Packaging	$ 24,900	$ 5,500	$ 7,750	$ 38,150
Totals	$ 83,000	$ 55,000	$ 25,000	$ 163,000