Pepper Department store allocates its service department expenses to its various operating (sales) departments. The following data is available for its service departments: Expense Basis for allocation Amount Rent Square feet of floor space $ 24,000 Advertising Amount of dollar sales $ 30,000 Administrative Number of employees $ 45,000 The following information is available for its three operating (sales) departments: Department Square Feet Dollar Sales Number of employees

A 3,000 $ 280,000 6
B 3,400 $ 300,000 8
C 3,600 $ 420,000 10
Totals 10,000 $ 1,000,000

What is the total expense allocated to Department B?

$32,160.00  

Explanation:

Each of the expenses would be allocated as follows:

Advertising expense =   (300,000/1,000,000) ×  30,00  =9,000

Rent            (  3400/10,000 24000) ×   24,000 =   8,160

Administrative expenses  (8/24 ×  45,000)  =  15,000

Total expense allocated to Department B

= 9000+ 8160 + 15000

= $32,160.00  

The expense related to department B is $ 32,160

Explanation:

We are required to calculate the total cost for Department B.

Square feet total is $24000. The square feet occupied by B is 3400.

Therefore the expense for department B is 3400/10000 * 24000 =  $8160

Now we need to allocate the advertising expense. We can allocate this based on the number of sales in dollar value per department. Therefore the cost for department B will be 300/1000*30000 = $ 9000

Administrative expenses should be allocated based on the number of employees. There are 24 employees in total. Department B has 8 employees.

Admin costs are $ 45000. Thus Department B's expense is 8/24*45000 = $15000

Total expenditure is therefore $8160 + $9000 + $15000 =  $ 32160

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