Question

Sasha Company allocates the estimated $195,600 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable functions. The costs will be allocated based on the number of employees using the direct method. Information regarding costs and employees follows:

Department: Accounting

Employees: 4

Department: Production

Employees: 26

Department: Sales

Employees: 14

How much of the accounting department costs will be allocated to the production?

A) 128,140

B) 129,140

C) 117,140

D) 127,140

Answer 1

Accounting department costs = $195,600

Production Department Employees = 26

Sales Department Employees = 14

Total employees of Production Department and Sales Department = Production Department Employees + Sales Department Employees

= 26 + 14

= 40

Accounting department costs allocated to the production department = Accounting department costs x Production Department Employees/Total employees of Production Department and Sales Department

= 195,600 x 26/40

= $127,140

Correct option is (D)