Pepper Department Store allocates its service department expenses to its various operating...
Question:
Pepper Department Store allocates its service department expenses to its various operating (sales) departments.
The following data is available for its service departments:
| Expense | Basis for Allocation | Amount |
|---|---|---|
| Rent | Square feet of floor space | $24,000 |
| Advertising | Amount of dollar sales | $30,000 |
| Administrative | Number of employees | $45,000 |
The following information is available for its three operating (sales) departments:
| Department | Square Feet | Dollar Sales | Number of employees |
|---|---|---|---|
| A | 3,000 | $280,000 | 6 |
| B | 3,400 | $300,000 | 8 |
| C | 3,600 | $420,000 | 10 |
| Total | 10,000 | $1,000,000 | 24 |
What is the total advertising expense allocated to Department C?
a) $30,000.
b) $9,000.
c) $12,500.
d) $10,800.
e) $7,500.
Cost Allocation:
Cost allocation is a method to measure the cost of a certain cost object. Here, the total indirect cost is distributed to various cost objects. A cost object is an item that can be measured individually. Examples of cost objects are a product and a department.
Answer and Explanation: 1
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