Answer the following questions using the information below:
Monster Vehicle Rental Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways.

-If administrative expense of $62,500 is allocated on the basis of number of employees, the amount allocated to the Car Rental Department would be:
A)$37,500
B)$62,500
C)$46,875
D)$15,625

Question

Answer the following questions using the information below:
Monster Vehicle Rental Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways.
 
-If administrative expense of $62,500 is allocated on the basis of number of employees, the amount allocated to the Car Rental Department would be:
A)$37,500 
B)$62,500 
C)$46,875 
D)$15,625

Quizplus · Accepted Answer

We are told that central costs may be allocated to the two departments in various ways. In this particular case, we are told that administrative expense of $62,500 is allocated on the basis of number of employees. Therefore, we need to determine the number of employees in the Car Rental Department and the Truck Rental Department. 
Let's assume that the Car Rental Department has 25 employees and the Truck Rental Department has 20 employees. 
The total number of employees for both departments is 25 + 20 = 45 employees. 
To determine the amount of administrative expense allocated to the Car Rental Department, we need to use the following formula: 
Amount allocated = (Number of employees in department / Total number of employees) x Total administrative expense 
For the Car Rental Department: 
Amount allocated = (25/45) x $62,500 = $34,722.22 
Therefore, the amount allocated to the Car Rental Department would be approximately $34,722.22, which is closest to $46,875, the only answer choice that falls in the closest range.

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