Question

Exercise 22-3 Service department expenses allocated to operating departments LO P2

Advertising department expenses of $75,000 and purchasing department expenses of $58,300 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.
  

Department	Sales			Purchase Orders
Books	$	150,000			1,680
Magazines		84,000			945
Newspapers		66,000			875
Total	$	300,000			3,500

  
Complete the following table by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.

omplete the following table by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.

Advertising	Allocation Base	Percent of Allocation Base			Cost to be Allocated	Allocated Cost
Department		Numerator	Denominator	% of Total
Books
Magazines
Newspapers
Totals
Purchasing	Allocation Base	Percent of Allocation Base			Cost to be Allocated	Allocated Cost
Department		Numerator	Denominator	% of Total
Books
Magazines
Newspapers
Totals

Complete the spreadsheet by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments. (Amounts to be deducted should be indicated with minus sign.)

COZY BOOKSTORE
Departmental Expense Allocation Spreadsheet
	Expense Totals	Advertising	Purchasing	Books	Magazines	Newspapers
Total department expenses	$833,000	$75,000	$58,300	$174,900	$166,600	$358,200
Service Dept. Expenses
Advertising Dept.
Purchasing Dept.
Total expenses allocated	$833,000

Answer 1

Allocation of advertising department expense

Department	sales	Numerator	Denominator	% of total	cost to be allocated	allocated costs
Books	150000	150000	300000	50%	75000	37500
Magazines	84000	84000	300000	28%	75000	21000
Newpapers	66000	66000	300000	22%	75000	16500
Total	300000			100%		75000

Allocation of purchasing department expense

Department	number of purchase orders	Numerator	Denominator	% of total	cost to be allocated	allocated costs
Books	1680	1680	3500	48%	58300	27984
Magazines	945	945	3500	27%	58300	15741
Newpapers	875	875	3500	25%	58300	14575
Total	3500			100%		58300

	Expenses total	advertising	purchasing	books	magazines	Newpapers
Total department expenses	833000	75000	58300	174900	166600	358200
Service department expenses
Advertising depart.		(75000)		37500	21000	16500
Purchasing depart.			(58300)	27984	15741	14575
Total expenses allocated	833000	0	0	240384	203341	389275