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ALLOCATING OPERATING EXPENSE—MILES DRIVEN Mercado Lopez owns a furniture store that offers free delivery of merchandise delivered within the local area. Mileage records for the three sales departments are as follows: The cost of using the truck for the last year, including depreciation, was $16,000. Allocate the cost of the truck among the three departments on the basis of miles driven.

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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
Publisher: Cengage Learning,
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
Publisher: Cengage Learning,
ISBN: 9781337794756
Chapter 25, Problem 4SEA
Textbook Problem
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ALLOCATING OPERATING EXPENSE—MILES DRIVEN Mercado Lopez owns a furniture store that offers free delivery of merchandise delivered within the local area.

Mileage records for the three sales departments are as follows:

Chapter 25, Problem 4SEA, ALLOCATING OPERATING EXPENSEMILES DRIVEN Mercado Lopez owns a furniture store that offers free

The cost of using the truck for the last year, including depreciation, was $16,000.

Allocate the cost of the truck among the three departments on the basis of miles driven.

To determine

Compute the amount of cost of truck allocated to the departments, based on the miles used.

Explanation of Solution

Indirect expenses: The expenses that are not directly related to the operations of one department alone, or related to joint or associated departments, are referred to as indirect expenses.

Compute the amount of cost of truck allocated to each of the departments, based on the miles used.

DepartmentMiles UsedPercentage of Total Miles×Cost of Truck=Allocated Cost
Department 136,000(36,000/100,000=36%) ×$16,000=$5,7

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Chapter 25 Solutions

College Accounting, Chapters 1-27
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