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Allocation of Administrative Costs

Nashville Corporation allocates administrative costs on the basis of staff hours. Short-run monthly usage and long-run monthly usage of staff hours for Operating Departments 1 and 2 follow:

Dept. 1 Dept. 2 Total

Short-run usage (hours) 45,000 55,000 100,000
Long-usage (hours) 48,000 52,000 100,000

The annual cost of the corporate headquarters is $1,000.000. Required:

a) Allocate the corporate headquarters cost to the two operating departments using short -run
usage in each operating department.

b) Allocate the corporate headquarters cost to the two operating departments using long -run
usage in each operating department

Solution Preview

Nashville Corporation allocates administrative costs on the basis of staff hours. Short-run monthly usage and long-run monthly usage of staff hours for Operating Departments 1 and 2 follow:
Dept. 1 Dept. 2 Total
Short-run usage (hours) 45,000 ...

Solution Summary

An allocation of administrative costs are discussed. Staffing hours for operation departments are given.

$2.19