Question

For each of the following types of indirect expenses and service department expenses, identify one allocation basis that could be used to distribute it to the departments indicated.

____ 1. Computer service expenses of production scheduling for operating departments.

____ 2. General office department expenses of the operating departments.

____ 3. Maintenance department expenses of the operating departments.

____ 4. Electric utility expenses of all departments.

Short answer

Production Run Schedule1. Computer service expenses of production scheduling for operating departments.

The number of Employees2. General office department expenses of the operating departments.

The number of machines used3. Maintenance department expenses of the operating departments.

Cubic feet area occupied4. Electric utility expenses of all departments.

Step-by-step solution

Definition of Allocation Basis

The base used for allocating the expenses to a different department of the business entity is known as the allocation basis. Allocation basis includes the area in square feet, number of employees, number of machines, and units of production.

Computer service expenses

The different departments will require a different number of production run schedules, and therefore the computer service expenses will be allocated based on the production run schedule.

General office department expenses

General office department expenses will be allocated based on employees working in each department.

Maintenance department expenses

Maintenance department expenses will be allocated based on the number of machines used by each department that require maintenance

Electric utility expenses

Electricity expenses will be allocated based on the area occupied by each department operating in the company.