BA233 - Accounting for Managers

M6 Step 4 Learning Activity

Overhead Allocation

The activity is on several worksheets, see tabs at bottom of worksheet, Part 1,

Part 2, Part 3, Part 4. Make sure to complete all the worksheets.

Brooms R Us

Brooms R Us operates a large warehouse store in Roseburg where they sell every

kind of broom. Broom management is interested in allocating the cost of sales

supervision and utility costs to store departments.

Management collected the following information:

Department

Estimated Monthly Sales

In-store square footage assigned

Estimated monthly store supplies usage

Estimated monthly sales staff hours

Kitchen

$ 29,300

2,300

$ 1,900

610

Patio

8,120

400

1,800

35

Industrial

14,970

1,200

2,000

240

Garage

4,380

1,500

1,700

310

Total

$ 56,770

5,400

$ 7,400

1,195

Sales Supervision

Supervisors work closely with the sales staff. Management policy is to

maintain one supervisor for every six sales staff. Supervision is considered

a fixed cost.

Estimated monthly cost of sales supervision:

$ 18,900

Utilty Cost

Utilty cost is associated with store lighting and heating.

Utilties are considered a fixed cost.

Estimated monthly cost of utilities

$ 3,200

Required:

Part 1

Determine which cost driver (sales, square footage, supplies usage, or sales

staff hours) should be used to allocate sales supervision and utility cost to the

departments. Using the above information select the cost driver that is

most related to the overhead cost.

Cost Driver

Sales supervision

BA233 - Accounting for Managers
M6 Step 4 Learning Activity
Accounting for Managers
Week 8 Step 1 Activity
Overhead Allocation (continued)
Brooms R Us
Part 2
Okay, let's assume that you selected the following cost drivers in part 1:
	Sales staff hours for Sales Supervision
	Square footage for Utility Cost
Using the cost information that management collected on the Part 1 worksheet
calculate the allocation rate for sales supervision and utiltiy cost. This allocation
rate will be used to allocate overhead cost to departments.
			Allocation Rate
Sales supervision
Utility cost

Utility cost

BA233 - Accounting for Managers

M6 Step 4 Learning Activity

Overhead Allocation (continued)

Brooms R Us

Part 3

Brooms R Us incurred the following actual sales staff hours during June.

Use the supervision allocation rate that you calculated in Part 2 to allocate

supervision cost to each department (we will allocate utility cost in Part 4).

Calculate amounts to the nearest cent.

Department

Actual July Sales Staff Hours

Allocated Sales Supervision Cost

Kitchen

635

Patio

43

Industrial

217

Garage

268

Total

1,163

BA233 - Accounting for Managers
M6 Step 4 Learning Activity
Overhead Allocation (continued)
Brooms R Us
Part 4
Brooms R Us used the following square footage for each department during June.
Use the utility allocation rate that you calculated in Part 2 to allocate
utility cost to each department. Calculate amounts to the nearest cent.
Department		Square Footage Used in July	Allocated Utility Cost
Kitchen		2,300
Patio		400
Industrial		1,200
Garage		1,500
Total		5,400