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Financial & Managerial Accounting
Found in: Page 1013
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

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.

Production Run Schedule 1. Computer service expenses of production scheduling for operating departments.

The number of Employees 2. General office department expenses of the operating departments.

The number of machines used 3. Maintenance department expenses of the operating departments.

Cubic feet area occupied 4. Electric utility expenses of all departments.

See the step by step solution

Step by Step Solution

Step 1: 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.

Step 2: 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.

Step 3: General office department expenses

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

Step 4: Maintenance department expenses

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

Step 5: Electric utility expenses

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

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