Perfect Health Pharmacy allocates indirect expenses to its three departments on the basis of sales.

For the year ended 30 June 2019, the following allocations were made.

Assume that, during the year ended 30 June 2020, the dispensary items and cosmetics departments have the same sales they had in the previous year, but hair care sales have increased to $171 734 because of the popularity of a new product line. Assume further that the total indirect expenses of $710 000 have increased by 15%.
Required

(a) Determine the allocation of indirect expenses for the year ended 30 June 2020, using sales.

(b) Are the results of requirement

(a) logical for an equitable allocation of indirect expenses?
Explain.

Transcribed Image Text:

Dispensary items Sales Indirect expenses $766 200 426 000 Cosmetics $383 100 213000 Hair care $127 700 71000 Total $1 277 000 710000