Which of the following statements is correct? 1. Administrative expenses are apportioned among various departments on the basis of the purchase value of each department. 2. Administrative expenses are apportioned among various departments on the basis of the sales value of each department. 3. Administrative expenses are apportioned among various departments on the basis of the value of assets of each department. 4. Administrative expenses are apportioned among various departments based on the time employees spend in each department.

The correct statement is – Administrative expenses are apportioned among various departments based on the time employees spend in each department.

• Administrative costs include the costs of paying wages and salaries as well as benefits to non-sales personnel.
• They are one of the three categories of operating costs that together make up a company’s overall costs.
• The other two are related to selling and general costs.
• These costs are distributed according to how much time employees spend in each department, as salaries and wages are included in administrative expenses and paid according to the time and service an employee gives in a department. The right response is, therefore, option 4.

Explanation of statements:

• Transportation costs and other expenses related to the procurement of goods are allocated based on the purchase value of each department. Option 1 is wrong because these costs are not considered administrative expenses.
• The costs associated with selling items, such as discounts granted, bad debts, freight outbound, etc., are allocated based on the sales value of each department. Option 2 is wrong because these costs are not included in administrative costs.
• The worth of the assets in each department determines how much is spent on depreciation, repairs, maintenance, and other costs related to the asset value. Option 3 is wrong because these costs are not included in administrative costs.