Three segments X Y and Z of Truly Company have net sales of

Three segments (X, Y and Z) of Truly Company have net sales of $ 200,000, $ 75,000, and $ 125,000, respectively. A decision is made to allocate the pool of $ 30,000 of administrative overhead expenses of the home office to the segments, using net sales as the basis for allocation.

How much of the $30,000 should be allocated to each segment?

Solution

Step-1:Calculation of total net sales Segment X Y Z Total Net Sales $       2,00,000 $       75,000 $       1,25,000 $       4,00,000 Step-2:Calculation of allocation of administrative overhead expenses to each segment Allocation of administrative overhead expenses to segment: X $       30,000 x $       2,00,000 / $       4,00,000 = $           15,000 Y $       30,000 x $           75,000 / $       4,00,000 = $             5,625 Z $       30,000 x $       1,25,000 / $       4,00,000 = $             9,375 Total $           30,000 Thus, Allocation of administrative overhead expenses to segment: X $       15,000 Y $         5,625 Z $         9,375 Total $       30,000