There are five departments in a concern. The total indirect expenses amounted to Rs.
12,000. One sixth of the expenses are to be divided equally to all the five departments.
The remaining expenses are to be shared in the ratio of sales. Sales of the various
departments are as follows:
a. Dept A – Rs. 50,000
b. Dept B – Rs. 40,000
c. Dept C – Rs. 30,000
d. Dept D – Rs. 20,000
e. Dept E – Rs.60,000
You are required to show the allocation of the expenses for the above 5 departments
Answers
Answer:
As 1/6 of expenses are equally shared
1/6* 12000=2000
share of each 5 department =4000
a) Ratio of dept A = 50000: 4000=25:2
b) Ratio of dept B= 40000: 4000= 10:1
c)Ratio of dept C= 30000:4000=15:2
d) Ratio of dept D= 20000:4000=5:1
e)Ratio of dept E= 60000:4000=15:1
Answer:
As 1/6 of expenses are equally shared
1/6* 12000=2000
Share of each five departments =4000
a) Ratio of dept A = 50000: 4000=25:2
b) Ratio of dept B= 40000: 4000= 10:1
c)Ratio of dept C= 30000:4000=15:2
d) Ratio of dept D= 20000:4000=5:1
e)Ratio of dept E= 60000:4000=15:1
Explanation:
Indirect expenses are also called overhead.
Indirect expenses affect the business and not just a specific product. These ongoing operational costs are also referred to as overheads for the business. Examples of indirect expenses may include office supplies, accounting services, and utility bills.
What Do You Mean by Indirect Expense?
The most prevalent instances of indirect expenditures are rent and utilities. Businesses sometimes house many departments in the same structure. The structure has advantages for all of the departments. This implies that each department benefits from the costs associated with rent, heating, electricity, and other utilities. None of these costs can be put solely attributable to one department.
Indirect costs are often given to each department or cost object because of this (source of the expenses). In general, management attempts to divide up these costs according to utilisation. For instance, square footage is frequently used to determine rent. If three departments occupy the building, the total rent expenditure would be divided among the departments according to their square footage.
Example of indirect expenses:
- rent
- bonus
- telephone bill
- electricity bill
- travelling expenses
- salary
- Commission
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