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 $ 42,000 Number of employees Depreciation 30,000 Cost of goods sold Advertising 64,000 Net sales Item Drilling Grinding Total Number of employees 1,200 1,800 3,000 Net sales $ 370,000 $ 555,000 $ 925,000 Cost of goods sold $ 125,400 $ 204,600 $ 330,000 The amount of depreciation that should be allocated to Drilling for the current period is: Multiple Choice $64,000. $18,600. $39,680. $11,400. $30,000.

Answer 1

Answer:

$11,400

Explanation:

The expenses are allocated to different department based on different suitable allocation basis. These basis are also known as the cost drivers.

As per given information

Office Expenses     Total           Allocation Basis

Salaries                   $42,000    Number of employees

Depreciation           $30,000   Cost of goods sold

Advertising             $64,000    Net sales

Item                                Drilling      Grinding     Total

Number of employees   1,200         1,800         3,000

Net sales                      $370,000   $555,000  $925,000

Cost of goods sold      $125,400    $204,600  $330,000

Depreciation is allocated to department based on the cost of goods sold by each department.

Depreciation expense allocation

To drilling department = Depreciation expense x Cost of goods sold ratio = $30,000 x $125,400 / $330,000 = $11,400