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The following is a partially completed lower section of a departmental expense allocation for Cozy Bookstore. It reports the total amounts of direct and indirect expenses allocated to its five (5) departments. Allocate the expenses of the two service departments (advertising and purchasing) to the three operating departments and provide the complete income statement. Please complete the income statement. Advertising and purchasing department expenses are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. Information about the allocation bases for the three operating departments follows.

The following is a partially completed lower section of a departmental expense allocation for Cozy Bookstore. It reports the total amounts of direct and indirect expenses allocated to its five (5) departments. Allocate the expenses of the two service departments (advertising and purchasing) to the three operating departments and provide the complete income statement. Please complete the income statement. Advertising and purchasing department expenses are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. Information about the allocation bases for the three operating departments follows.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The following is a partially completed lower section of a departmental expense allocation for Cozy Bookstore. It reports the total amounts of direct and indirect expenses allocated to its five (5) departments. Allocate the expenses of the two service departments (advertising and purchasing) to the three operating departments and provide the complete income statement. Please complete the income statement.

Advertising and purchasing department expenses are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. Information about the allocation bases for the three operating departments follows.

### Allocation of Expenses to Departments (Educational Content) When analyzing the allocation of department expenses, it is crucial to understand how costs from service departments are distributed among operating departments. In this context, we have two key types of service department expenses: those related to advertising and those related to purchasing. These expenses are respectively allocated based on the dollar sales and the number of purchase orders in each operating department. #### Understanding the Data Tables ##### Table 1: Expense Allocation Overview - **Allocation Base and Expenses**: This table breaks down how total department expenses are divided among service and operating departments. - **Total Department Expenses**: $698,000 - **Service Department Expenses**: - **Advertising Department**: $24,000 - **Purchasing Department**: $34,000 - **Operating Department Expense Allocations**: - **Books Department**: $425,000 - **Magazines Department**: $90,000 - **Newspapers Department**: $125,000 ##### Graph Explanation: In the Allocation of Expenses to Departments table: - The rows marked with "?" indicate the allocation proportions of service department expenses to operating departments, yet to be determined. ##### Table 2: Basis for Expense Allocation - **Books Department**: - Sales: $495,000 - Purchase Orders: 516 - **Magazines Department**: - Sales: $198,000 - Purchase Orders: 360 - **Newspapers Department**: - Sales: $207,000 - Purchase Orders: 324 - **Total**: - Sales: $900,000 - Purchase Orders: 1,200 ### Key Takeaways: 1. **Service Department Expenses Allocation**: - Advertising expenses are allocated based on each department's sales in dollars. - Purchasing expenses are allocated based on the number of purchase orders handled by each department. 2. **Information Processing**: - The provided sales and purchase order data for each operating department will be used to proportionally distribute the $24,000 advertising expense and the $34,000 purchasing expense. ### Practical Application: For educational purposes, students can learn to process these allocations using the proportionate method. For example, to allocate advertising expenses, one calculates each department’s percentage of total sales and applies that percentage to the total advertising expense. #### Example Calculation: - **Books
Transcribed Image Text:### Allocation of Expenses to Departments (Educational Content) When analyzing the allocation of department expenses, it is crucial to understand how costs from service departments are distributed among operating departments. In this context, we have two key types of service department expenses: those related to advertising and those related to purchasing. These expenses are respectively allocated based on the dollar sales and the number of purchase orders in each operating department. #### Understanding the Data Tables ##### Table 1: Expense Allocation Overview - **Allocation Base and Expenses**: This table breaks down how total department expenses are divided among service and operating departments. - **Total Department Expenses**: $698,000 - **Service Department Expenses**: - **Advertising Department**: $24,000 - **Purchasing Department**: $34,000 - **Operating Department Expense Allocations**: - **Books Department**: $425,000 - **Magazines Department**: $90,000 - **Newspapers Department**: $125,000 ##### Graph Explanation: In the Allocation of Expenses to Departments table: - The rows marked with "?" indicate the allocation proportions of service department expenses to operating departments, yet to be determined. ##### Table 2: Basis for Expense Allocation - **Books Department**: - Sales: $495,000 - Purchase Orders: 516 - **Magazines Department**: - Sales: $198,000 - Purchase Orders: 360 - **Newspapers Department**: - Sales: $207,000 - Purchase Orders: 324 - **Total**: - Sales: $900,000 - Purchase Orders: 1,200 ### Key Takeaways: 1. **Service Department Expenses Allocation**: - Advertising expenses are allocated based on each department's sales in dollars. - Purchasing expenses are allocated based on the number of purchase orders handled by each department. 2. **Information Processing**: - The provided sales and purchase order data for each operating department will be used to proportionally distribute the $24,000 advertising expense and the $34,000 purchasing expense. ### Practical Application: For educational purposes, students can learn to process these allocations using the proportionate method. For example, to allocate advertising expenses, one calculates each department’s percentage of total sales and applies that percentage to the total advertising expense. #### Example Calculation: - **Books
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