Pepper Department Store allocates its service department expenses to its various operating (sales) departments. The following data is available for its service departments: Expense Basis for allocation AmountRent Square feet of floor space $ 30,000Advertising Amount of dollar sales 42,000Administrative Number of employees 63,000The following information is available for its three operating (sales) departments: Department Square Feet Dollar Sales Number of employeesA 3,600 $ 298,000 12B 4,000 $ 318,000 14C 4,200 $ 444,000 16Totals 11,800 $ 1,060,000 42What is the total advertising expense allocated to Department B?
Question
Pepper Department Store allocates its service department expenses to its various operating (sales) departments. The following data is available for its service departments: Expense Basis for allocation AmountRent Square feet of floor space 298,000 12B 4,000 444,000 16Totals 11,800 $ 1,060,000 42What is the total advertising expense allocated to Department B?
Solution
To calculate the total advertising expense allocated to Department B, we need to follow these steps:
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Determine the proportion of Department B's dollar sales to the total dollar sales. This is done by dividing Department B's dollar sales by the total dollar sales.
Department B's dollar sales = 1,060,000
Proportion of Department B's dollar sales to total dollar sales = 1,060,000 = 0.3 (approximately)
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Multiply the total advertising expense by the proportion calculated in step 1. This will give us the total advertising expense allocated to Department B.
Total advertising expense = $42,000
Total advertising expense allocated to Department B = 12,600
So, the total advertising expense allocated to Department B is $12,600.
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