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Sleep Analysis allocates indirect labour costs to its two departments, Lifestyle and Medical, using number of employees per department as the cost driver. For thec urrent year the number of employees in department Lifestyle are estimated to be 50 and for Medical department 30 and total indirect labour costs for the departments are budgeted at $1,400,000. What are the amounts allocated to the departments?

Question

Sleep Analysis allocates indirect labour costs to its two departments, Lifestyle and Medical, using number of employees per department as the cost driver. For thec urrent year the number of employees in department Lifestyle are estimated to be 50 and for Medical department 30 and total indirect labour costs for the departments are budgeted at $1,400,000. What are the amounts allocated to the departments?

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Solution

First, we need to calculate the total number of employees:

Total Number of Employees = Number of Employees in Lifestyle + Number of Employees in Medical = 50 + 30 = 80

Next, we calculate the proportion of employees in each department to the total number of employees:

Proportion of Employees in Lifestyle = Number of Employees in Lifestyle / Total Number of Employees = 50 / 80 = 0.625

Proportion of Employees in Medical = Number of Employees in Medical / Total Number of Employees = 30 / 80 = 0.375

Then, we multiply the total indirect labour costs by the proportion of employees in each department to find the amount allocated to each department:

Amount Allocated to Lifestyle = Total Indirect Labour Costs * Proportion of Employees in Lifestyle = 1,400,0000.625=1,400,000 * 0.625 = 875,000

Amount Allocated to Medical = Total Indirect Labour Costs * Proportion of Employees in Medical = 1,400,0000.375=1,400,000 * 0.375 = 525,000

Therefore, the amounts allocated to the departments are 875,000forLifestyleand875,000 for Lifestyle and 525,000 for Medical.

This problem has been solved

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