Allocation of indirect costs to various departments can alter the departmental profit. Jacobs Company manufactures plates for drum brakes. To make the brake plate, three departments are required: stamping, plating, and packaging. At Jacobs, each department manager is eligible for a bonus based on departmental profit. You are the manager of the stamping department. Top management has given you the responsibility of assigning the indirect costs to each department. Stamping has higher material costs whereas plating has higher labor costs. You are to propose an allocation methodology that is fair to all department managers.

In order to understand the financial impact on each department, management will create a spreadsheet that assigns indirect expenses to the various departments (in this case: (A) Stamping (B) Plating (C) Packaging), based upon an accepted allocation methodology.

In addition, as the manager of the Stamping Department you will also need to support your approach / logic. What do you want to know about these expenses? Why is material costs high in one area and labor costs are high in another?

Jacobs Company Allocation Worksheet Set-Up The Appropriate Formula Variance Insurance Expense Rent Expense Utilities Expense Office Salaries Expense Other Office Expense Uncollectible Accounts Expense Depreciation Expense - Furniture & Fixtures Depreciation Expense - Office Equipment Enter Percentage Allocation TOTAL Stamping Plating Packaging $8,118 48% 26% 26% $2,160 48% 26% 26% $4,056 48% 32% 20% $82,825 23% 54% 23% $18,000 35% 33% 33% $1,300 33% 33% 33% $1,000 33% 33% 33% $500 23% 54% 23% 292% 291% 217% TOTAL 100% 100% 100% 100% 100% 100% 100% 100% Stamping Plating Packaging $3,896.70 $2,110.71 $2,110.71 $1,036.80 $561.60 $561.60 $1,946.88 $1,297.92 $811.20 $19,049.75 $44,725.50 $19,049.75 $6,300.00 $5,850.00 $5,850.00 $433.29 $433.29 $433.29 $333.30 $333.30 $333.30 $115.00 $270.00 $115.00 $33,112 $55,582 $29,265 $8,118.12 $2,160.00 $4,056.00 $82,825.00 $18,000.00 $1,299.87 $999.90 $500.00 $117,959 $0 $0 $0