All the indirect costs are allocated by accounting for a department. The manager has obtained records of allocation rates and actual charges for the prior 3 months and estimates for this month (May) and next month (see the table). The basis of allocation is not indicated, and the company accountant has no record of the basis used. However, the accountant advises the manager to not be concerned because the allocation rates have decreased each month.

During the evaluation, the following additional information from departmental and accounting records is obtained.

(a) With this information determine the allocation basis used each month.
(b) Comment on the accountant’s statement about decreasing allocationrates.

Indirect Cost, $ Month Allocated Charged 2600 3800 3500 Rate March April May une February 1.40 1.33 1.37 1.03 0.92 2800 3400 3500 3600 6000 Direct Labor Materia Departmental Month Space, ft 2000 2000 3500 3500 3500 Hors Cost, $Cost, $ March April May February 640 640 640 640 800 2560 2560 2560 2720 3320 5400 4600 5700 6300 6500