Staff Company allocates common Building Department costs to producing departments (P1 and P2)based on space occupied,and it allocates common Personnel Department costs based on the number of employees.Space occupancy and employee data are as follows: $\begin{array}{lcccc}
&\text { Building } & \text { Personnel } & \text { Dept.P1 }&\text { Dept. P2 }\
\text { Space occupied } & 2,000 \mathrm{~m} & 10,000 \mathrm{~m} & 120,000 \mathrm{~m} & 70,000 \mathrm{~m} \
\text { Employees } & 6 & 10 & 80 & 50
\end{array}$
If Staff Company uses the direct allocation method,what is the ratio representing the portion of building costs allocated to Department P1?

Question

Staff Company allocates common Building Department costs to producing departments (P1 and P2)based on space occupied,and it allocates common Personnel Department costs based on the number of employees.Space occupancy and employee data are as follows: $\begin{array}{lcccc}
&\text { Building } & \text { Personnel } & \text { Dept.P1 }&\text { Dept. P2 }\
\text { Space occupied } & 2,000 \mathrm{~m} & 10,000 \mathrm{~m} & 120,000 \mathrm{~m} & 70,000 \mathrm{~m} \
\text { Employees } & 6 & 10 & 80 & 50
\end{array}$
 If Staff Company uses the direct allocation method,what is the ratio representing the portion of building costs allocated to Department P1?

Quizplus · Accepted Answer

The direct allocation method only considers the specific cost drivers for each department, which means that each department is allocated the costs that directly relate to their usage. In this case, the building costs are allocated based on space occupied, which means that the ratio representing the portion of building costs allocated to Department P1 is the space occupied by P1 divided by the total space occupied.

From the data given, we can see that Department P1 occupies 40% of the total space, which means that the ratio representing the portion of building costs allocated to Department P1 is:

(40%/100%) x $190,000 = $76,000

Therefore, the ratio representing the portion of building costs allocated to Department P1 is:

$76,000 / $190,000 = 0.4 or 2/5

This is equivalent to choice B) 120,000/190,000.

Staff Company Allocates Common Building Department Costs to Producing Departments