Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: Office Expenses Total Allocation Basis Salaries $ 45,000 Number of employees Depreciation 31,000 Cost of goods sold Advertising 65,000 Net sales Item Drilling Grinding Total Number of employees 1,000 1,500 2,500 Net sales $ 376,000 $ 564,000 $ 940,000 Cost of goods sold $ 129,200 $ 210,800 $ 340,000 The amount of the total office expenses that should be allocated to Drilling for the current period is: a) $55,780.
b) $84,200.
c) $93,200.
d) $141,000.
e) $600,000.

The correct answer is A.

Explanation:

Giving the following information:

Item Drilling Grinding Total

Number of employees 1,000 1,500 2,500

Net sales $ 376,000 $ 564,000 $ 940,000

Cost of goods sold $ 129,200 $ 210,800 $ 340,000

First, we need to calculate the predetermined overhead rate for each  office expense:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Salaries= 45,000/2,500= $18 per employee

Depreciation= 31,000/340,000= $0.091 per COGS

Advertising= 65,000/940,000= $0.069 per net sale

Now, we can allocate costs to Drilling:

Salaries= 18*1,000= $18,000

Depreciation= 0.091*129,200= $11,757.2

Advertising= 0.069*376,000= $25,944

Total allocated office costs= $55,701.2

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