ABC Sports Company has two service departments (advertising and administrative)
ID: 2483091 • Letter: A
Question
ABC Sports Company has two service departments (advertising and administrative) and two operating departments (sports equipment and clothing). During 2008, the departments had the following direct expenses and occupied the following floor space.
Department
Direct Expenses
Square Feet
Advertising
$22,000
1,200
Administrative
28,000
1,550
Sports equipment
122,000
8,250
Clothing
18,000
4,000
Advertising department developed and distributed 140 ads during the year (84 promoted sports equipment and 56 promoted clothing).
The store sold $475,000 of merchandise during the year ($370,500 sports equipment and $104,500 clothing).
The utilities expense of $84,000 is an indirect expense of all departments.
Required:
1.Prepare a departmental expense allocation spreadsheet for ABC Sports Company.
2.The spreadsheet should assign:
a.Direct expenses to each of the four departments,
b.The $84,000 of utilities expense to the four departments on the basis of floor space occupied,
c.The advertising department’s expense to the two operating departments on the basis of the number of ads placed that promoted a department’s products, and
d.The administrative department’s expenses to the two operating departments based on the amount of sales.
3.Provide supporting computations for the expense allocations.
See next page to record answer for required Part 1—Part 3. Some (not all) of the titles have already been setup for you.
Part 1 & 2
Allocation of Expense to Departments
Advertising Dept
Administrative Dept
Sports Equipment
Clothing Dept
Direct Expense
Indirect Expense
Total Dept Exp
Service Dept Exp
Total Exp Allocated to operating depts..
Part 3
2b. Utilities Allocation
Department
Allocation Base
% of Total (Alloc Ratio)
Cost allocation
Total
100%
$84,000
2c. Advertising Expense Allocation
Department
Allocation Base
% of Total (Alloc Ratio)
Cost allocation
Total
100%
$________
2d. Administrative Expense Allocation
Department
Allocation Base
% of Total (Alloc Ratio)
Cost allocation
Total
100%
$________
Department
Direct Expenses
Square Feet
Advertising
$22,000
1,200
Administrative
28,000
1,550
Sports equipment
122,000
8,250
Clothing
18,000
4,000
Explanation / Answer
Departments Total Advertising department administrative department sports department clothing department direct expense ($) 190000 22000 28000 122000 18000 indirect expense (utlities expense) ($) 84000 6720 8680 46200 22400 total department expense ($) 274000 28720 36680 168200 40400 Allocation of administrative department cost ($) -36680 28610 8070 Allocation of Advertising department cost ($) -28720 17232 11488 Total Exp Allocated to operating depts ($) 214042 59958