Saylind Molding paid $280,000 in rent for the year. The company's three departments are Headrests, Armrests, and Floor Mats. The accountant has identified two possible cost drivers. The number of employees in each department and the square footage of space occupied by each department. The number of employees working in each department includes 60 in the Headrest Department, 30 in the Armrest Department and 110 in Floor Mats Department. The departments occupy 5,000, 6,300, and 2,700 square feet, for Headrests, Armrests, and Floor Mats respectively. How much of the rent cost should be allocated to the products made in the Floor Mats department?

a.$ 54,000

b.$100,000

c.$126,000

d.$128,000

The correct answer is A.

Explanation:

Giving the following information:

Saylind Molding paid $280,000 in rent for the year.

We need to allocate overhead based on a cost pool of our choosing. I will consider choosing square footage because it is evenly distributed between the departments. The number of employees is significantly higher in the Floor Mats department.

First, we need to calculate the estimated overhead rate:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 280,000/ (5,000 + 6,300 + 2,700)= 280,000/14,000= $20 per square foot.

Now, we can allocate overhead to Floor Mats department:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 20*2,700= $54,000