Allocation of Indirect cost to Service and operating department: Before allocation of cost of service department, it is necessary to allocate all the indirect cost associated with the all departments concernedso as to know the actual cost incurred by each department. After this process only, the total allocated cost of service department is re-allocated among operating department. Requirement1: To Determine: TheAllocation of Indirect expense among all the departments.

Question

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Answer 1

Question

Chapter 24, Problem 5E

To determine

Allocation of Indirect cost to Service and operating department:

Before allocation of cost of service department, it is necessary to allocate all the indirect cost associated with the all departments concernedso as to know the actual cost incurred by each department. After this process only, the total allocated cost of service department is re-allocated among operating department.

Requirement1:

To Determine: TheAllocation of Indirect expense among all the departments.

Expert Solution

Answer to Problem 5E

Solution: The allocation of departmental expense shall be done on some suitable basis as under:

Supervision	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Employees	27	150	18.00%	82500	14850
Personnel	Employees	9	150	6.00%	82500	4950
Manufacturing	Employees	63	150	42.00%	82500	34650
Packaging	Employees	51	150	34.00%	82500	28050
Total		150		100.00%		82500

Utilities	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Sq. feet	25000	100000	25.00%	50000	12500
Personnel	Sq. feet	5000	100000	5.00%	50000	2500
Manufacturing	Sq. feet	55000	100000	55.00%	50000	27500
Packaging	Sq. feet	15000	100000	15.00%	50000	7500
Total		100000		100.00%		50000

Insurance	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Assets value	6000	60000	10.00%	22500	2250
Personnel	Assets value	1200	60000	2.00%	22500	450
Manufacturing	Assets value	37800	60000	63.00%	22500	14175
Packaging	Assets value	15000	60000	25.00%	22500	5625
Total		60000		100.00%		22500

Explanation of Solution

The Allocation of all indirect expense like Supervision, Utilities and insurance expense shall be done among the departments (service or operating) on some suitable basis. Like, Supervision expense shall be done on the basis of number of employees employed among the departments. The Utilities expense shall be allocated among the department on the basis of square feet of the area covered by the department. And the insurance expense shall be allocated on the assets value installed.

To determine

Requirement2:

To determine: The Summary of allocation sheet shall be made.

Expert Solution

Answer to Problem 5E

Solution: The Summary of allocation has been prepared as under:

Indirect Expense Allocation Spreadsheet
	Allocation	Expense	Material	Personnel	Mfg	Packaging
	Base	Total	Deptt.	Deptt.	Deptt.	Deptt.
Indirect Expense
Supervision	Employees	82500	14850	4950	34650	28050
Utilities	Sq. feet	50000	12500	2500	27500	7500
Insurance	Assets value	22500	2250	450	14175	5625
Total Expense allocated		155000	29600	7900	76325	41175

Explanation of Solution

The indirect expense as allocated in the step-1 has been shown as a total of the respective department concerned for further analysis and allocation.

Conclusion

To conclude, it can be said that service department cost is an indirect cost for operating cost to be allocated among them on some suitable allocation base.

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Last year, Orion Systems had $420 million in sales and owned $300 million in fixed assets, which were utilized at 70% of capacity. By how much (in millions) can Orion's sales increase before it must increase its fixed assets? a) $160.00 b) $180.00 c) $200.00 d) $220.00 e) $240.00

Answer 2

Question

Chapter 24, Problem 5E

To determine

Allocation of Indirect cost to Service and operating department:

Before allocation of cost of service department, it is necessary to allocate all the indirect cost associated with the all departments concernedso as to know the actual cost incurred by each department. After this process only, the total allocated cost of service department is re-allocated among operating department.

Requirement1:

To Determine: TheAllocation of Indirect expense among all the departments.

Expert Solution

Answer to Problem 5E

Solution: The allocation of departmental expense shall be done on some suitable basis as under:

Supervision	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Employees	27	150	18.00%	82500	14850
Personnel	Employees	9	150	6.00%	82500	4950
Manufacturing	Employees	63	150	42.00%	82500	34650
Packaging	Employees	51	150	34.00%	82500	28050
Total		150		100.00%		82500

Utilities	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Sq. feet	25000	100000	25.00%	50000	12500
Personnel	Sq. feet	5000	100000	5.00%	50000	2500
Manufacturing	Sq. feet	55000	100000	55.00%	50000	27500
Packaging	Sq. feet	15000	100000	15.00%	50000	7500
Total		100000		100.00%		50000

Insurance	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Assets value	6000	60000	10.00%	22500	2250
Personnel	Assets value	1200	60000	2.00%	22500	450
Manufacturing	Assets value	37800	60000	63.00%	22500	14175
Packaging	Assets value	15000	60000	25.00%	22500	5625
Total		60000		100.00%		22500

Explanation of Solution

The Allocation of all indirect expense like Supervision, Utilities and insurance expense shall be done among the departments (service or operating) on some suitable basis. Like, Supervision expense shall be done on the basis of number of employees employed among the departments. The Utilities expense shall be allocated among the department on the basis of square feet of the area covered by the department. And the insurance expense shall be allocated on the assets value installed.

To determine

Requirement2:

To determine: The Summary of allocation sheet shall be made.

Expert Solution

Answer to Problem 5E

Solution: The Summary of allocation has been prepared as under:

Indirect Expense Allocation Spreadsheet
	Allocation	Expense	Material	Personnel	Mfg	Packaging
	Base	Total	Deptt.	Deptt.	Deptt.	Deptt.
Indirect Expense
Supervision	Employees	82500	14850	4950	34650	28050
Utilities	Sq. feet	50000	12500	2500	27500	7500
Insurance	Assets value	22500	2250	450	14175	5625
Total Expense allocated		155000	29600	7900	76325	41175

Explanation of Solution

The indirect expense as allocated in the step-1 has been shown as a total of the respective department concerned for further analysis and allocation.

Conclusion

To conclude, it can be said that service department cost is an indirect cost for operating cost to be allocated among them on some suitable allocation base.

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Answer 3

Question

Chapter 24, Problem 5E

To determine

Allocation of Indirect cost to Service and operating department:

Before allocation of cost of service department, it is necessary to allocate all the indirect cost associated with the all departments concernedso as to know the actual cost incurred by each department. After this process only, the total allocated cost of service department is re-allocated among operating department.

Requirement1:

To Determine: TheAllocation of Indirect expense among all the departments.

Expert Solution

Answer to Problem 5E

Solution: The allocation of departmental expense shall be done on some suitable basis as under:

Supervision	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Employees	27	150	18.00%	82500	14850
Personnel	Employees	9	150	6.00%	82500	4950
Manufacturing	Employees	63	150	42.00%	82500	34650
Packaging	Employees	51	150	34.00%	82500	28050
Total		150		100.00%		82500

Utilities	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Sq. feet	25000	100000	25.00%	50000	12500
Personnel	Sq. feet	5000	100000	5.00%	50000	2500
Manufacturing	Sq. feet	55000	100000	55.00%	50000	27500
Packaging	Sq. feet	15000	100000	15.00%	50000	7500
Total		100000		100.00%		50000

Insurance	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Assets value	6000	60000	10.00%	22500	2250
Personnel	Assets value	1200	60000	2.00%	22500	450
Manufacturing	Assets value	37800	60000	63.00%	22500	14175
Packaging	Assets value	15000	60000	25.00%	22500	5625
Total		60000		100.00%		22500

Explanation of Solution

The Allocation of all indirect expense like Supervision, Utilities and insurance expense shall be done among the departments (service or operating) on some suitable basis. Like, Supervision expense shall be done on the basis of number of employees employed among the departments. The Utilities expense shall be allocated among the department on the basis of square feet of the area covered by the department. And the insurance expense shall be allocated on the assets value installed.

To determine

Requirement2:

To determine: The Summary of allocation sheet shall be made.

Expert Solution

Answer to Problem 5E

Solution: The Summary of allocation has been prepared as under:

Indirect Expense Allocation Spreadsheet
	Allocation	Expense	Material	Personnel	Mfg	Packaging
	Base	Total	Deptt.	Deptt.	Deptt.	Deptt.
Indirect Expense
Supervision	Employees	82500	14850	4950	34650	28050
Utilities	Sq. feet	50000	12500	2500	27500	7500
Insurance	Assets value	22500	2250	450	14175	5625
Total Expense allocated		155000	29600	7900	76325	41175

Explanation of Solution

The indirect expense as allocated in the step-1 has been shown as a total of the respective department concerned for further analysis and allocation.

Conclusion

To conclude, it can be said that service department cost is an indirect cost for operating cost to be allocated among them on some suitable allocation base.

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Answer 4

Question

Chapter 24, Problem 5E

To determine

Allocation of Indirect cost to Service and operating department:

Before allocation of cost of service department, it is necessary to allocate all the indirect cost associated with the all departments concernedso as to know the actual cost incurred by each department. After this process only, the total allocated cost of service department is re-allocated among operating department.

Requirement1:

To Determine: TheAllocation of Indirect expense among all the departments.

Expert Solution

Answer to Problem 5E

Solution: The allocation of departmental expense shall be done on some suitable basis as under:

Supervision	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Employees	27	150	18.00%	82500	14850
Personnel	Employees	9	150	6.00%	82500	4950
Manufacturing	Employees	63	150	42.00%	82500	34650
Packaging	Employees	51	150	34.00%	82500	28050
Total		150		100.00%		82500

Utilities	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Sq. feet	25000	100000	25.00%	50000	12500
Personnel	Sq. feet	5000	100000	5.00%	50000	2500
Manufacturing	Sq. feet	55000	100000	55.00%	50000	27500
Packaging	Sq. feet	15000	100000	15.00%	50000	7500
Total		100000		100.00%		50000

Insurance	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Assets value	6000	60000	10.00%	22500	2250
Personnel	Assets value	1200	60000	2.00%	22500	450
Manufacturing	Assets value	37800	60000	63.00%	22500	14175
Packaging	Assets value	15000	60000	25.00%	22500	5625
Total		60000		100.00%		22500

Explanation of Solution

The Allocation of all indirect expense like Supervision, Utilities and insurance expense shall be done among the departments (service or operating) on some suitable basis. Like, Supervision expense shall be done on the basis of number of employees employed among the departments. The Utilities expense shall be allocated among the department on the basis of square feet of the area covered by the department. And the insurance expense shall be allocated on the assets value installed.

To determine

Requirement2:

To determine: The Summary of allocation sheet shall be made.

Expert Solution

Answer to Problem 5E

Solution: The Summary of allocation has been prepared as under:

Indirect Expense Allocation Spreadsheet
	Allocation	Expense	Material	Personnel	Mfg	Packaging
	Base	Total	Deptt.	Deptt.	Deptt.	Deptt.
Indirect Expense
Supervision	Employees	82500	14850	4950	34650	28050
Utilities	Sq. feet	50000	12500	2500	27500	7500
Insurance	Assets value	22500	2250	450	14175	5625
Total Expense allocated		155000	29600	7900	76325	41175

Explanation of Solution

The indirect expense as allocated in the step-1 has been shown as a total of the respective department concerned for further analysis and allocation.

Conclusion

To conclude, it can be said that service department cost is an indirect cost for operating cost to be allocated among them on some suitable allocation base.

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Answer 5

Chapter 24, Problem 5E

To determine

Allocation of Indirect cost to Service and operating department:

Before allocation of cost of service department, it is necessary to allocate all the indirect cost associated with the all departments concernedso as to know the actual cost incurred by each department. After this process only, the total allocated cost of service department is re-allocated among operating department.

Requirement1:

To Determine: TheAllocation of Indirect expense among all the departments.

Expert Solution

Answer to Problem 5E

Solution: The allocation of departmental expense shall be done on some suitable basis as under:

Supervision	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Employees	27	150	18.00%	82500	14850
Personnel	Employees	9	150	6.00%	82500	4950
Manufacturing	Employees	63	150	42.00%	82500	34650
Packaging	Employees	51	150	34.00%	82500	28050
Total		150		100.00%		82500

Utilities	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Sq. feet	25000	100000	25.00%	50000	12500
Personnel	Sq. feet	5000	100000	5.00%	50000	2500
Manufacturing	Sq. feet	55000	100000	55.00%	50000	27500
Packaging	Sq. feet	15000	100000	15.00%	50000	7500
Total		100000		100.00%		50000

Insurance	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Assets value	6000	60000	10.00%	22500	2250
Personnel	Assets value	1200	60000	2.00%	22500	450
Manufacturing	Assets value	37800	60000	63.00%	22500	14175
Packaging	Assets value	15000	60000	25.00%	22500	5625
Total		60000		100.00%		22500

Explanation of Solution

The Allocation of all indirect expense like Supervision, Utilities and insurance expense shall be done among the departments (service or operating) on some suitable basis. Like, Supervision expense shall be done on the basis of number of employees employed among the departments. The Utilities expense shall be allocated among the department on the basis of square feet of the area covered by the department. And the insurance expense shall be allocated on the assets value installed.

To determine

Requirement2:

To determine: The Summary of allocation sheet shall be made.

Expert Solution

Answer to Problem 5E

Solution: The Summary of allocation has been prepared as under:

Indirect Expense Allocation Spreadsheet
	Allocation	Expense	Material	Personnel	Mfg	Packaging
	Base	Total	Deptt.	Deptt.	Deptt.	Deptt.
Indirect Expense
Supervision	Employees	82500	14850	4950	34650	28050
Utilities	Sq. feet	50000	12500	2500	27500	7500
Insurance	Assets value	22500	2250	450	14175	5625
Total Expense allocated		155000	29600	7900	76325	41175

Explanation of Solution

The indirect expense as allocated in the step-1 has been shown as a total of the respective department concerned for further analysis and allocation.

Conclusion

To conclude, it can be said that service department cost is an indirect cost for operating cost to be allocated among them on some suitable allocation base.

Answer 6

Chapter 24, Problem 5E

To determine

Allocation of Indirect cost to Service and operating department:

Before allocation of cost of service department, it is necessary to allocate all the indirect cost associated with the all departments concernedso as to know the actual cost incurred by each department. After this process only, the total allocated cost of service department is re-allocated among operating department.

Requirement1:

To Determine: TheAllocation of Indirect expense among all the departments.

Expert Solution

Answer to Problem 5E

Solution: The allocation of departmental expense shall be done on some suitable basis as under:

Supervision	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Employees	27	150	18.00%	82500	14850
Personnel	Employees	9	150	6.00%	82500	4950
Manufacturing	Employees	63	150	42.00%	82500	34650
Packaging	Employees	51	150	34.00%	82500	28050
Total		150		100.00%		82500

Utilities	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Sq. feet	25000	100000	25.00%	50000	12500
Personnel	Sq. feet	5000	100000	5.00%	50000	2500
Manufacturing	Sq. feet	55000	100000	55.00%	50000	27500
Packaging	Sq. feet	15000	100000	15.00%	50000	7500
Total		100000		100.00%		50000

Insurance	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Assets value	6000	60000	10.00%	22500	2250
Personnel	Assets value	1200	60000	2.00%	22500	450
Manufacturing	Assets value	37800	60000	63.00%	22500	14175
Packaging	Assets value	15000	60000	25.00%	22500	5625
Total		60000		100.00%		22500

Explanation of Solution

The Allocation of all indirect expense like Supervision, Utilities and insurance expense shall be done among the departments (service or operating) on some suitable basis. Like, Supervision expense shall be done on the basis of number of employees employed among the departments. The Utilities expense shall be allocated among the department on the basis of square feet of the area covered by the department. And the insurance expense shall be allocated on the assets value installed.

Answer 7

Chapter 24, Problem 5E

To determine

Allocation of Indirect cost to Service and operating department:

Before allocation of cost of service department, it is necessary to allocate all the indirect cost associated with the all departments concernedso as to know the actual cost incurred by each department. After this process only, the total allocated cost of service department is re-allocated among operating department.

Requirement1:

To Determine: TheAllocation of Indirect expense among all the departments.

Answer 8

Expert Solution

Answer to Problem 5E

Solution: The allocation of departmental expense shall be done on some suitable basis as under:

Supervision	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Employees	27	150	18.00%	82500	14850
Personnel	Employees	9	150	6.00%	82500	4950
Manufacturing	Employees	63	150	42.00%	82500	34650
Packaging	Employees	51	150	34.00%	82500	28050
Total		150		100.00%		82500

Utilities	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Sq. feet	25000	100000	25.00%	50000	12500
Personnel	Sq. feet	5000	100000	5.00%	50000	2500
Manufacturing	Sq. feet	55000	100000	55.00%	50000	27500
Packaging	Sq. feet	15000	100000	15.00%	50000	7500
Total		100000		100.00%		50000

Insurance	Allocation	Percentage of allocation base			Cost to be	Allocated
	Base	Numerator	Denominator	% of total	Allocated	Cost
Department
Material	Assets value	6000	60000	10.00%	22500	2250
Personnel	Assets value	1200	60000	2.00%	22500	450
Manufacturing	Assets value	37800	60000	63.00%	22500	14175
Packaging	Assets value	15000	60000	25.00%	22500	5625
Total		60000		100.00%		22500

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

The Allocation of all indirect expense like Supervision, Utilities and insurance expense shall be done among the departments (service or operating) on some suitable basis. Like, Supervision expense shall be done on the basis of number of employees employed among the departments. The Utilities expense shall be allocated among the department on the basis of square feet of the area covered by the department. And the insurance expense shall be allocated on the assets value installed.

Answer 13

To determine

Requirement2:

To determine: The Summary of allocation sheet shall be made.

Expert Solution

Answer to Problem 5E

Solution: The Summary of allocation has been prepared as under:

Indirect Expense Allocation Spreadsheet
	Allocation	Expense	Material	Personnel	Mfg	Packaging
	Base	Total	Deptt.	Deptt.	Deptt.	Deptt.
Indirect Expense
Supervision	Employees	82500	14850	4950	34650	28050
Utilities	Sq. feet	50000	12500	2500	27500	7500
Insurance	Assets value	22500	2250	450	14175	5625
Total Expense allocated		155000	29600	7900	76325	41175

Explanation of Solution

The indirect expense as allocated in the step-1 has been shown as a total of the respective department concerned for further analysis and allocation.

Conclusion

To conclude, it can be said that service department cost is an indirect cost for operating cost to be allocated among them on some suitable allocation base.

Answer 14

To determine

Requirement2:

To determine: The Summary of allocation sheet shall be made.

Answer 15

Expert Solution

Answer to Problem 5E

Solution: The Summary of allocation has been prepared as under:

Indirect Expense Allocation Spreadsheet
	Allocation	Expense	Material	Personnel	Mfg	Packaging
	Base	Total	Deptt.	Deptt.	Deptt.	Deptt.
Indirect Expense
Supervision	Employees	82500	14850	4950	34650	28050
Utilities	Sq. feet	50000	12500	2500	27500	7500
Insurance	Assets value	22500	2250	450	14175	5625
Total Expense allocated		155000	29600	7900	76325	41175

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

The indirect expense as allocated in the step-1 has been shown as a total of the respective department concerned for further analysis and allocation.

Answer 20

Conclusion

To conclude, it can be said that service department cost is an indirect cost for operating cost to be allocated among them on some suitable allocation base.