Correct Answer - Option 4 : Administrative expenses are apportioned among various departments on basis of the time spent by employees in each department.
The correct answer is Administrative expenses are apportioned among various departments on basis of the time spent by employees in each department.
Administrative expenses: The costs of paying wages and salaries, as well as providing benefits to non-sales employees, are referred to as administration expenses. They are one of three types of operating expenses that make up a business's total costs. Selling and general expenses are the other two.
Since, administrative expenses are the expenses which include salaries & wages and salaries and wages are paid according to the time and service an employee renders in his/her department, the apportionment of such expenses is done on the basis of time spent by employees in each department. So, option 4 is the correct answer.
Explanation of statements:
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Carriage inwards or other expenses incurred on purchase of goods are apportioned on the basis of purchase value of each department. These expenses are not included in administrative expenses, hence option 1 is incorrect.
- Expenses incurred on selling of goods like discount allowed, bad debts, freight outwards etc. are apportioned on the basis of sales value of each department. These expenses are not included in administrative expenses, hence option 2 is incorrect.
- Expenses incurred on the value of assets like, Depreciation, repair costs, maintenance etc. are apportioned on the basis of the value of assets of each department. These expenses are not included in administrative expenses, hence option 3 is incorrect.
Allocation of Expenses:
| Expenses |
Basis of allocation |
| Rent, rates and taxes, repairs and maintenance, insurance of building |
Floor area occupied by each department (if given) otherwise on time basis |
| Wages/Salaries |
Time devoted to each department |
| Lighting and Heating expenses (e.g., energy expenses) |
Consumption of energy by each department |
| Selling expenses, e.g., discount, bad debts, selling commission, freight outward, travelling sales manager’s salary and other costs |
Sales of each department |
| Carriage inward |
Purchases of each department |
| Depreciation, insurance, repairs and maintenance of capital assets |
Value of assets of each department otherwise on time basis |
| Administrative and other expenses, e.g., salaries of managers, directors, common advertisement expenses, etc. |
Time basis or equally among all departments |
| Labour welfare expenses |
Number of employees in each department |
| PF/ESI contributions |
Wages and salaries of each department |
