Question

Woh Che Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.

Indirect expenses	Cost	Allocation Base
Supervision	\(82,500	Number of Employees
Utilities	50,000	Square feet occupied
Insurance	22,500	Value of assets in use
Total	\)155,000

Departmental data for the company’s recent reporting period follow.

Department	Employees	Square feet	Asset values
Material	27	25,000	\(6,000
Personnel	9	5,000	1,200
Manufacturing	63	55,000	37,800
Packaging	51	15,000	15,000
Total	150	100,000	\)60,000

1. Use this information to allocate each of the three indirect expenses across the four departments.

2. Prepare a summary table that reports the indirect expenses assigned to each of the four departments.

Short answer

The personnel department is allocated a total cost of$7,900.

Step-by-step solution

Definition of Personnel Department

The department of the organization that is concerned with the recruitment, training, and development of employees is known as the personnel department. This department is managed by an individual known as the human resource manager.

Allocation of indirect expenses

Materials Department:

Indirect expenses	Basis value	/	Total basis value	X	Costs	=	Allocated Cost
Supervision	27	/	150	X	$82,500	=	$14,850
Utilities	25,000	/	100,000	X	$50,000	=	12,500
Insurance	$6,000	/	$60,000	X	$22,500	=	2,250
							$29,600

Personnel Department:

Indirect expenses	Basis value	/	Total basis value	X	Costs	=	Allocated Cost
Supervision	9	/	150	X	$82,500	=	$4,950
Utilities	5,000	/	100,000	X	$50,000	=	2,500
Insurance	$1,200	/	$60,000	X	$22,500	=	450
							$7,900

Manufacturing Department:

Indirect expenses	Basis value	/	Total basis value	X	Costs	=	Allocated Cost
Supervision	63	/	150	X	$82,500	=	$34,650
Utilities	55,000	/	100,000	X	$50,000	=	27,500
Insurance	37,800	/	$60,000	X	$22,500	=	14,175
							$76,325

Packaging Department:

Indirect expenses	Basis value	/	Total basis value	X	Costs	=	Allocated Cost
Supervision	51	/	150	X	$82,500	=	$28,050
Utilities	15,000	/	100,000	X	$50,000	=	7,500
Insurance	15,000	/	$60,000	X	$22,500	=	$5,625
							$41,175

Cost assigned to each department

Department	Allocated Cost
Materials department	$29,600
Personnel department	$7,900
Manufacturing department	$76,325
Packaging department	$41,175