Exercise 9-3 Service department expenses allocated to operating departments LO P

Question

Exercise 9-3 Service department expenses allocated to operating departments LO P2 Advertising department expenses of $25,000 and purchasing department expenses of $56,200 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 Sales Purchase Orders Department Books Magazines Newspapers Total $186,200 95,000 98,800 $380,000 546 364 390 1,300 Complete the following table by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.

Explanation / Answer

Advertising Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Sales Numerator Denominator % of Total Books Dept 186200 186200 380000 49% 25000 12250 Magazines Dept 95,000 95000 380000 25% 25000 6250 Newspapers Dept 98,800 98800 380000 26% 25000 6500 Totals 380000 100% 25000 Purchasing Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Number of orders Numerator Denominator % of Total Books Dept 546 546 1300 42% 56200 23604 Magazines Dept 364 364 1300 28% 56200 15736 Newspapers Dept 390 390 1300 30% 56200 16860 Totals 1300 100% 56200 Allocation of Expenses to Departments Allocation Base Expense Account Balance Advertising Dept. Purchasing Dept. Books Dept. Magazines Dept. Newspapers Dept. Total department expenses 624000 25000 56200 168500 124800 249500 Advertising Dept. Sales 0 -25,000 12,250 6,250 6,500 Purchasing Dept. Purch. orders 0 -56,200 23,604 15,736 16,860 Total expenses allocated to operating depts. 624000 0 0 204354 146786 272860

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