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Cost Center Allocations by Employees and Square Feet

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Cost center 1. Cost center 2
Total costs. $20,000. $30,000
Sq ft. 50. 200
# of employers 1. 2

Profit center 1. Profit center. 2
Profit before cost center. $40,000. $25,000
Sq. Ft. 500. 300
# of employers. 4. 15

The company allocates cost center 1 by sq ft. And cost center 2 by # of employers

Calculate profit of each center if company uses the direct allocation method

Calculate the profit of each center if the company allocates cost center 1 first and then cost center 2

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Solution Summary

The solution examines cost center allocations by employees and square feet.

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Profit-Direct Allocation method Profit Centre 1 Profit Centre 2

Profit before allocation 40,000 25,000
Allocated costs (18,816) (31,184)

Net profit 21,184 ...

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