1 and 2: The allocation of each of the three indirect expenses across the four departments and a summary of the total expenses assigned are as follows:
Materials Personnel Manufacturing Packaging Total
Supervision $14,850 $4,950 $34,650 $28,050 $82,500
Utilities 12,500 2,500 27,500 7,500 50,000
Insurance 2,250 450 14,175 5,625 22,500
Total allocated $29,600 $7,900 $76,325 $41,175 $155,000
Indirect costs are expenses incurred by service departments on behalf of production departments.
After they are accumulated, these costs are shared by a systematic allocation process.
Some allocation methods include direct allocation, reciprocal, and sequential methods.
Materials = $14,850 (0.18 x $82,500)
Personnel = $4,950 (0.06 x $82,500)
Manufacturing = $34,650 (0.42 x $82,500)
Packaging = $28,050 (0.34 x $82,500)
Materials = $12,500 (0.25 x $50,000)
Personnel = $2,500 (0.05 x $50,000)
Manufacturing = $27,500 (0.55 x $50,000)
Packaging = $7,500 (15 x $50,000)
Materials = $2,250 (0.10 x $22,500)
Personnel = $450 (0.02 x $22,500)
Manufacturing = $14,175 (0.63 x $22,500)
Packaging = $5,625 (0.25 x $22,500)
Department Employees Square Feet Asset Values
Materials 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
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The four departments share the following indirect expenses for supervision, utilities, and insurance according to their usage.
Indirect Expense Allocation Base
Supervision $82,500 Number of employees
Utilities 50,000 Square feet occupied
Insurance 22,500 Asset values
Total Cost $155,000
