Question

The purchasing department of Lorenzo Corporation operates as a service department. The number of purchase orders processed during the most recent month are as follows:

Eastern Division	83 purchase orders
Central Division	48 purchase orders
Western Division	29 purchase orders

The monthly cost of operating the purchasing department, including personnel, amounted to $50,000.

​Allocate the cost of the purchasing department using the number of purchase orders as an allocation base.

Answer 1

• Workings

	Easter Division	83
	Central Division	48
	Western Division	29
A	Total purchase order	160
B	Total Purchase department cost	$50,000.00
C = B/A	Allocation rate	$312.50 per purchase order

• Requirement asked

Amount allocated to:
Easter Division	$25,937.50	[83 purchase orders x $ 312.50]
Central Division	$15,000.00	[48 purchase orders x $ 312.50]
Western Division	$9,062.50	[29 purchase orders x $ 312.50]