Allocation of building occupancy costs to departments L.O. P1 [The following inf

Question

Allocation of building occupancy costs to departments L.O. P1 [The following information applies to the questions displayed below.] City Bank has several departments that occupy both floors of a two-story building. The departmental accounting system has a single account, Building Occupancy Cost, in its ledger. The types and amounts of occupancy costs recorded in this account for the current period follow. The building has 4,000 square feet on each floor. In prior periods, the accounting manager merely divided the $64,000 occupancy cost by 8,000 square feet to find an average cost of $8 per square foot and then charged each department a building occupancy cost equal to this rate times the number of square feet that it occupied. Laura Diaz manages a first-floor department that occupies 1,000 square feet, and Lauren Wright manages a second-floor department that occupies 1,800 square feet of floor space. In discussing the departmental reports, the second-floor manager questions whether using the same rate per square foot for all departments makes sense because the first-floor space is more valuable. This manager also references a recent real estate study of average local rental costs for similar space that shows first-floor space worth $30 per square foot and second-floor space worth $20 per square foot (excluding costs for heating, lighting, and maintenance). Required: Allocate occupancy costs to the Diaz and Wright departments using the current allocation method. (Omit the "$" sign in your response.) Allocate the depreciation, interest, and taxes occupancy costs to the Diaz and Wright departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Diaz and Wright departments in proportion to the square feet occupied (ignoring floor space market values). (Round your cost per Sq. ft rate to 2 decimal places and final answers to the nearest whole number. Omit the "$" sign in your response.)

Explanation / Answer

Diaz 1000SFT, 1st Flr Wright 1800dft 2nd Fr Realty rate is in ratio of $30:$20 ie 3:2 Dep + Int + Taxes = 18000+27000+8000 = 53,000 Total Area 8000 & is equally used in 1st & 2nd flor = 4000 sft So 1st flr Alllocation based on Mkt rate = $53000*(3/(2+3)) = $31,800 & 2nd Flr allocation = $53000*2/5 = $21,200 Now 1st Flr has 4000 Sft. So per sft rate = $31,800/4000 = $7.950 per sft 2nd Flr has 4000 Sft. So per sft rate = $21,200/4000 = $5.300 per sft So Diaz 1000SFT, 1st Flr = 1000*$7.95 = $7950 .......(1) Wright 1800dft 2nd Fr = 1800*$5.30 = $9,540 ......(2) Gas + Lighting + Maint (GLM) = 2500+3000+5500 = $11000 Total Area = 8000 sft So per SFT rate for GLM = $11000/8000 = $1.38 per sft So GLM cost for : Diaz 1000SFT, 1st Flr = 1000*$1.38 = $1380 .....(3) Wright 1800dft 2nd Fr = 1800*1.38 = $2484 .....(4) So Diaz dept = 1+3 = $7950+$1380 = $9,330 Wright Dept = 2+4 = $9540+2484 = $12,024 ...............Ans

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