Question

Exercise 22-3 Service department expenses allocated to operating departments LO P2 tising department expenses of $48,200 and purchasing department expenses of $40,200 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 Books Magazines Newspapers Total Sales $167, 700 89,700 132,600 $390,000 Purchase Orders 1,232 756 812 2,800 Complete the following table by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.

Answer 1

• Requirement A

Advertising	Allocation Base	Percent of Allocation Base			Cost to be Allocated	Allocated Cost
Department		Numerator	Denominator	% of Total
Books Dept	Dollar Sales	$                           167,700.00	$           390,000.00	43%	$       48,200.00	$         20,726.00
Magazines Dept	Dollar Sales	$                             89,700.00	$           390,000.00	23%	$       48,200.00	$         11,086.00
Newspapers Dept	Dollar Sales	$                           132,600.00	$           390,000.00	34%	$       48,200.00	$         16,388.00
Totals	Dollar Sales	$                           390,000.00	$           390,000.00	100%	$       48,200.00	$         48,200.00
Purchasing	Allocation Base	Percent of Allocation Base			Cost to be Allocated	Allocated Cost
Department		Numerator	Denominator	% of Total
Books Dept	Purchase Orders	1,232	2,800	44%	$       40,200.00	$         17,688.00
Magazines Dept	Purchase Orders	756	2,800	27%	$       40,200.00	$         10,854.00
Newspapers Dept	Purchase Orders	812	2,800	29%	$       40,200.00	$         11,658.00
Totals	Purchase Orders	2,800	2,800	100%	$       40,200.00	$         40,200.00

• Requirement B

			Allocation of Expenses to Departments
Allocation Base	Expense Account Balance	Advertising Dept.	Purchasing Dept.	Books Dept.	Magazines Dept.	Dept.Newspapers Dept.
Total department expenses	$                803,000.00	$                             48,200.00	$             40,200.00	$          208,800.00	$      160,600.00	$        345,200.00
Advertising Dept. Sales	$                             -	$                            (48,200.00)		$           20,726.00	$       11,086.00	$         16,388.00
Purchasing Dept. Purch. orders	$                             -		$            (40,200.00)	$           17,688.00	$       10,854.00	$         11,658.00
Total expenses allocated to operating depts.	$                803,000.00	$                                        -	$                        -	$          247,214.00	$      182,540.00	$        373,246.00