Module 4 B

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cost allocation

If actual copies made are 4,800,000 what are the costs allocated to each department assuming the marketing department requested 2,500,000 copies and HR requested 2,300,000 copies.
Salaries and wages (fixed) $60,000
Employee Benefits (fixed) $8,000
Paper (variable $.01 per copy) $50,000
Toner (variable $.01 per copy) $50,000
Depreciation (fixed) $10,000
Utilities (fixed) $4,000
Total $182,000
Marketing Department HR Department Total
# of copies made 4,800,000
costs (.037) (# of copies made X .37) Note: not all of the $182,000 costs will be allocated

issues

What are the problems with using one allocation rate for the copy department’s costs?

New Allocation

Devise a better allocation system based on pooling costs. Show how the costs would be allocated based on your new system.
Allocate based on two pools-one for fixed costs one for variable
Salaries and wages (fixed) $60,000
Employee Benefits (fixed) $8,000
Paper (variable $.01 per copy) $50,000
Toner (variable $.01 per copy) $50,000
Depreciation (fixed) $10,000
Utilities (fixed) $4,000
Total $182,000
Marketing HR total
Total Fixed Costs Total Copies Cost per copy 2,500,000 2,300,000 4,800,000
$82,000 5,000,000 $0.016
Variable Costs $ 0.02
$0 $0 0