CLA 2

School: Westcliff University - Course: BUS 624 - Subject: Accounting

Question 2. Cozy Bookstore Income Statement Allocation BaseExpensesAmountAdvertisingDepartmentPurchasingDepartmentBooksDepartmentMagazineDepartmentNewspaper Departmen t Total Department expenses698000240003400042500090000125000 Service department exp n Advertising department -sales (24000)1320052805520 Purchase department -Purchase orders (34000)14620102009180 Totalexpn allocated tooperating departments 00452820105480139700 Table number 3 Working note: Let's determine the ratio for each department to segregate the Advertising sales cost to the department of book magazine and newspaper. 1.Books 495000/900000 = 0.55, i.e., 55% 55% of $24000= $13200 2.Magazine 198000/900000 = 0.22, i.e., 22% 22% of $24000= $5280 3.Newspaper 207000/900000 = 0.23, i.e., 23% 23% of $24000= $5520

Again, let's find the ratio of purchase order and allocate the cost accordingly to their percent of book, magazine and newspaper. 1.Books 516/1200 = 0.43, i.e., 43% 43% of $34000= $14620 2.Magazine 198000/900000 = 0.3, i.e., 30% 30% of $34000= $10200 3.Newspaper 324/1200 = 0.27, i.e., 27% 27% of $34000= $9180 Therefore, the ratio for the books, magazine and newspaper are 43%, 30%, and 27% respectively. And the purchase department expenses of $34000 is also allocated which is $14620 for book, $10200 for Magazine and $9180 for Newspaper.