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: Office ExpensesTotal Salaries Depreciation Advertising $20,000 20,000 40,000 Allocation Basis Number of employees Cost of goods sold Net sales Item Number of employees Net sales Cost of goods sold Drilling Grinding Total 1,888 1,588 2,58e $325, $475,80 $80,ee0 $200,00 75,e08 125, The amount of the total office expenses that should be allocated to Grinding for the current period is: Multiple Choice 35,750 $45,000 $54,250 $90,000

Explanation / Answer

Answer is option $54,250

This is how it is solved.

Here, salaries,depreciation and advertising is given as whole we separated them using basis of their calculation:

Therefore the total office expenses that is to be allocated to grinding is:

Salaries to be allocated:

Totalsalaries×no. of employees in grinding/total number of employees

:$30000×1500/2500=$18000

Depreciation to be allocated:

Total depreciation×cost of goods sold by grinding/total cost of goods sold

:$20000×$125000/$200000=$12500

Advertising expenses to be allocated:

Total advertising amount×net sales of grinding/total net sales

:$40000×$475000/$800000=$23750

Therefore the total amount allocated =

$18000+$12500+$23750=$54,250

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