Bank's Department Store has three departments: Men's, Women's, and Children's. The store incurred $22,000 of store rentalcosts during the current year. The departments identified the following cost drivers:Labor dollarsNumber of employeesSquare footageNumber of sales transactionsMultiple Choice$14,270Men's$ 522,000$1,425282,200292,000Women's$ 767,000387,200892,000Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department?Note: Do not round intermediate calculations. Round final answer to the nearest dollar.Children's$ 232,000221,70082,000

Answered: Using the most appropriate cost driver,…

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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Bank's Department Store has three departments: Men's, Women's, and Children's. The store incurred $22,000 of store rental
costs during the current year. The departments identified the following cost drivers:
Labor dollars
Number of employees
Square footage
Number of sales transactions
Multiple Choice
$14,270
Men's
$ 522,000
$1,425
28
2,200
292,000
Women's
$ 767,000
38
7,200
892,000
Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department?
Note: Do not round intermediate calculations. Round final answer to the nearest dollar.
Children's
$ 232,000
22
1,700
82,000

Expert Solution

Step 1

Allocation of Cost

Allocation of cost means apportionment of common indirect cost on the basis of appropriate activities or cost driver to different departments, products or jobs.

First, We have to find the appropriate cost driver for allocation of cost.

then, we have to calculate Activity rate by dividing activity cost by cost drivers.

After that allocate cost to the department or products by multiplying activity rate with number of activities performed.

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