Question

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Cozy Bookstore. It reports the total amounts of direct and indirect expenses allocated to its five departments. Complete the spreadsheet by allocating the expenses of the two service departments (advertising and purchasing) to the three operating departments.

			Allocation of expenses to departments
Particular	Allocation base	Expense account balance	Advertising department	Purchasing department	Books Department	Magazine department	News paper department
Total departmental expenses		\(698,000	\)24,000	\(34,000	\)425,000	\(90,000	\)125,000
Service department expenses
Advertising department	Sales		?		?	?	?
Purchasing department	Purchase order			?	?	?	?
Total expenses allocated to operating departments		?			?	?	?

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.

Department	Sales	Purchase Order
Books	\(495,000	516
Magazines	198,000	360
Newspaper	207,000	324
Total	\)900,000	1,200

Short answer

Book department:$452,820.

Magazine department:$105,480.

Newspaper department:$139,700.

Step-by-step solution

Step-By-Step SolutionStep 1: Definition of Advertising Expenses

The expenses associated with promoting the goods and services sold by the business entity are known as advertising expenses. These expenses cover the ads through different types of media.

Allocation of Expenses

			Allocation of expenses to departments
Particular	Allocation base	Expense account balance	Advertising department	Purchasing department	Books Department	Magazine department	Newspaper department
Total departmental expenses		$698,000	$24,000	$34,000	$425,000	$90,000	$125,000
Service department expenses
Advertising department	Sales		$24,000		$13,200	$5,280	$5,520
Purchasing department	Purchase order			$34,000	$14,620	$10,200	$9,180
Total expenses allocated to operating departments		698,000			$452,820	$105,480	$139,700