Question

Smith Company has two operating departments: Assembly and Fabricating. Assembly has 150 employees and occupies 44,000 square feet. Fabricating has 100 employees and occupies 36,000 square feet. Indirect factory expenses include $80,000 for administration and $100,000 for maintenance.

Administration is allocated based on the number of workers in each department, and maintenance is based on square footage. Determine the total amount of indirect factory expenses that should be allocated to the Assembly Department and to the Fabricating Department.

Answer 1

Ans.		Assembly	Fabricating	Total
	Administrative	48000	32000	80000
	Maintenance	55000	45000	100000
	Total indirect expenses	103000	77000	180000
	*Calculations:
		Assembly	Fabricating
	Administrative	80000 / (150+100) * 150	80000 / (150+100) * 100
	Maintenance	100000 / (44000+36000) * 44000	100000 / (44000+36000) * 36000
	*The calculation is based on ratios.
	Total administrative expesnes is distributed on the basis of the ratio of employees in each department.
	Total maintenance expesnes is distributed on the basis of the ratio of square feet in each department.