Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

-If total payroll processing costs are $40,000 and they are allocated on the basis of number of employees, the amount allocated to the Old Department should be
A) $28,000.
B) $12,000.
C) $30,000.
D) $33,333.

Question

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:
 
-If total payroll processing costs are $40,000 and they are allocated on the basis of number of employees, the amount allocated to the Old Department should be
A) $28,000. 
B) $12,000. 
C) $30,000. 
D) $33,333.

Quizplus · Accepted Answer

According to the information given, the Old Department has 12 employees and the New Department has 8 employees. If payroll processing costs are allocated based on the number of employees, then the Old Department should receive 12/20 (60%) of the total costs.

60% of $40,000 is $24,000. Therefore, the amount allocated to the Old Department should be $24,000.

Stohr Company Has Two Departments, New and Old