The following is a partially completed lower section of a departmental expense allocation spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Department Direct Expenses Number Purchase Orders Square FeetPurchasing $ 40,000 Maintenance 22,800 Fabrication 104,000 14 3,700Assembly 70,000 6 2,300 Compute the amount of Purchasing department expense to be allocated to Assembly
Question
The following is a partially completed lower section of a departmental expense allocation spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Department Direct Expenses Number Purchase Orders Square FeetPurchasing $ 40,000 Maintenance 22,800 Fabrication 104,000 14 3,700Assembly 70,000 6 2,300 Compute the amount of Purchasing department expense to be allocated to Assembly
Solution
To calculate the amount of Purchasing department expense to be allocated to Assembly, we need to know the total number of purchase orders and then determine what proportion of that total is attributable to the Assembly department.
First, let's find the total number of purchase orders:
Fabrication: 14 purchase orders Assembly: 6 purchase orders Total purchase orders = 14 + 6 = 20 purchase orders
Next, we calculate the proportion of total purchase orders that is attributable to the Assembly department:
Assembly purchase orders / Total purchase orders = 6 / 20 = 0.3
Finally, we multiply this proportion by the total Purchasing department expenses to find the amount to be allocated to Assembly:
Purchasing department expenses * Assembly's proportion of purchase orders = 12,000
So, $12,000 of the Purchasing department's expenses should be allocated to the Assembly department.
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