Question

Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: Office Expenses Total Allocation Basis Salaries $ 34,000 Number of employees Depreciation 22,000 Cost of goods sold Advertising 42,000 Net sales Item Drilling Grinding Total Number of employees 600 1,400 2,000 Net sales $ 328,000 $ 492,000 $ 820,000 Cost of goods sold $ 83,600 $ 136,400 $ 220,000 The amount of the total office expenses that should be allocated to Drilling for the current period is:

Answer 1

Answer:

The total amount of expenses that should be allocated towards drilling is $35,360.

Explanation:

We have been given three categories of office expenses -

SALARY = $34,000

DEPRECIATION = $22,000

ADVERTISING = $42,000

and we have to calculate the expenses allocated to drilling departments, so we will allocate from each of the three given expenses the proportion of expenses which belong to drilling department.

SALARY = $34,000 X Number of employees in drilling / total number of

                                                                                            employees

              = $34,000 x 600 / 2000

              = $10,200

DEPRECIATION = $22,000 X Cost of goods sold for drilling / total cost of

                                                                     goods sold

                          = $22,000 x $83,600 / $220,000

                          = $8,360

ADVERTISING   = $42,000 X Net sales from drilling / total net sales

                          = $42,000 x 328,000 / $820,000

                          = $ 16,800

TOTAL DRILLING EXPENSES = $10,200 + $8360 + $16,800

                                                 = $35,360