Assume Porter's Consulting uses the number of purchase orders as the cost driver for allocating purchasing costs of $285,000.If Porter issues 1,000 purchase orders, including 300 used by line activity one, 400 used by line activity two, 50 for supplies used by purchasing itself, and 250 used by administration, how much of the cost will be allocated to line activity two using the direct method of allocation?
A)$199,500
B)$114,000
C)$162,857
D)$195,000
E)None of the above.

Question

Quizplus · Accepted Answer

To allocate the purchasing costs using the direct method, we simply allocate the costs based on the number of purchase orders used by each line activity. Therefore, the cost allocated to line activity two would be:
(400/1000) x $285,000 = $114,000
Note that we do not consider the purchase orders used by administration or purchasing themselves, as they are not line activities. Therefore, answer choices A, D, and E are all incorrect. The only correct answer is C.

Assume Porter's Consulting Uses the Number of Purchase Orders as the Cost