Question
Based on the given information, how do I allocate the costs to each segment? Note: This company will be focusing on expanding the bridal segment.
Based on the given information, how do I allocate the costs to each segment?
Note: This company will be focusing on expanding the bridal segment. Keep this in mind when allocating direct and indirect costs.
Advertising: Expenditures for the FY 2018 prom fashion show totalled $6,045. Finally, Sandra advertised her wedding dresses at 14 bridal conventions throughout the year. The bridal conventions represented approximately 5 months' worth of total advertising expenditure. All other advertising expenditures would be allocated as a proportion of total applicable revenues.
The travel expense included Sandra's purchasing excursions, as well as the cost to transport equipment to and from the bridal conventions. Transportation to and from the bridal conventions costs a total of $6,478. Sandra also traveled to Atlanta, Georgia once a year to browse new prom fashion lines and designers, which cost a total of $1,500. The remaining purchasing excursion costs could not be allocated to a specific segment and thus were divided among all product segments, except prom dresses, in proportion to the cost of goods sold for each product segment.
In addition to Sandra, Crme Couture employed two bridal sales consultants and two general sales employees. Sandra oversaw and indirectly worked on all components of the business. The bridal sales consultants worked on an as-needed basis and focused exclusively on fitting and altering all bridal and bridesmaid dresses, whereas the general sales employees oversaw the remaining in-store apparel segments. In fiscal 2018, the bridal sales consultants earned a total of $40,534, $6,982, and $9,406 for the bridal gowns, bridesmaid dresses, and alterations segments, respectively. Similarly, the general sales employees were paid a total of $19,394 for the social occasion dress segment, $8,436 for the prom dress segment, and $9,891 for the accessories segment. All salaries and wages were allocated as a proportion of total applicable revenues.
The insurance policy pertained to all inventory and equipment that Crme Couture owned. Sandra estimated that 50 percent of the total insurance policy would be allocated to the bridal gown segment, whereas the remainder would be split evenly among the remaining product segments. Rent and utilities were allocated based upon square footage. The bridal boutique occupied 950 of the total 1,900 square feet, whereas bridesmaid, prom, and social occasion apparel each occupied 200 square feet. The rest of the rent expenditure was split evenly between the remaining in-store revenue segments.
Sandra did not believe that office supplies, telephone, and Internet expenditures should be allocated to consignment sales and therefore spread them evenly among all in-store revenue segments. Finally, Sandra had taken out a bank loan to purchase Crme Couture in 2013, and the interest and bank expenses could be spread evenly among all segments.
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