Marks Corporation has two operating departments, Drilling and Grinding, and an o

Question

Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period:

The amount of depreciation that should be allocated to Drilling for the current period is:

Multiple Choice

$40,000.

$20,000.

$25,000.

$ 7,500.

$12,500.

Office Expenses Total Allocation Basis Salaries $ 30,000 Number of employees Depreciation 20,000 Cost of goods sold Advertising 40,000 Net sales

Explanation / Answer

The correct answer is $ 7,500

Note :

Rate = Cost / Total Cost Driver

= Depreciation Amount / Cost of Goods Sold

= $ 20,000 / $ 200,000

= $ 0.10

Hence, depreciation that should be allocated to Drilling for the current period is = Rate * Cost of goods Sold for Drilling

= $ 0.10 * 75,000

= $ 7,500

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