Identify the appropriate cost driver for each indirect cost and compute the allocation rate for assigning each indirect cost to the cost objectives.

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P12-15 Selecting an appropriate cost driver (What is the
base?)
The Vest School of Vocational Technology has organized the
school training programs into three departments. Each department
provides training in a different area as follows: nursing
assistant, dental hygiene, and office technology. The school’s
owner, Wilma Vest, wants to know how much it cost to operate each
of the three departments. To accumulate the total cost for each
department, the accountant has identified several indirect cost
that must be allocated to each. These costs are $10,080 of
telephone expenses, $2,016 of supplies expense, $720,000 of office
rent, $144,000 of janitorial services, and $150,000 of salary paid
to the dean of students. To provide a reasonably accurate
allocation of costs, the accountant has identified several possible
cost drivers. These drivers and their association with each
department follow.

Cost
Driver Dept.1 Dept.2 Dept.3
Number of
telephones
28
32
52
Number of Faculty
Members
20
16
12
Square footage of office space
28,800
16, 800 12,000
Number of
secretaries
2
2
2

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a. Identify the appropriate cost objectives

b. Identify the appropriate cost driver for each indirect cost
and compute the allocation rate for assigning each indirect cost to
the cost objectives.

c. Determine the amount of telephone expense that should be
allocated to each of the three departments.

d. Determine the amount of supplies expense that should be
allocated to Department 3.

e. Determine the amount of office rent that should be allocated
to Department 2.

f. Determine the amount of janitorial services cost that should
be allocated to Department 1.

g. Identify two cost drivers not listed here that could be used
to allocate the cost of the dean’s salary to the three
departments.