Smart Choices allocates indirect labour costs to its two departments, Lifestyle and Storage Solutions using number of employees per department as the cost driver. For the current year the number of employees in department Lifestyle are estimated to be 50 and for Storage Solutions department 30 and total indirect labour costs for the departments are budgeted at $1,400,000. The amount allocated to the departments are:
A) Lifestyle $48,000: Storage Solutions $80,000
B) Lifestyle $875,000: Storage Solutions $525,000
C) Lifestyle $875,000: Storage Solutions $80,000
D) Lifestyle $525,000: Storage Solutions $875,000

Question

Quizplus · Accepted Answer

The total number of employees is 80 (50 Lifestyle + 30 Storage Solutions). The cost per employee is $1,400,000 / 80 = $17,500. Therefore, Lifestyle (50 employees) would be allocated $875,000 (50 * $17,500) and Storage Solutions (30 employees) would be allocated $525,000 (30 * $17,500).

Smart Choices Allocates Indirect Labour Costs to Its Two Departments