[The following information applies to the questions displayed below. National Ba

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[The following information applies to the questions displayed below. National Bank has several departments that occupy both filoors 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. Depreciation-Bulding Interest-Bullding mortgage Taxes-Bulding and land Gas (heatlng) expense Lighting expense Malntenance expense $ 31,500 47,250 14,000 4,375 5,250 9,625 Total occupancy cost $112,000 The bullding has 7,000 square feet on each floor. In prior perlods, the accounting manager merely divided the $112,000 occupancy cost by 14,000 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 occupled. Diane Linder manages a first-floor department that occuples 1,100 square feet, and Juan Chiro manages a second-fioor department that occuples 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 simlar space that shows first-floor space worth $40 per square foot and second-floor space worth $20 per square foot (excluding costs for heating, lighting, and malntenance.

Explanation / Answer

Average occupancy cost = $ 112,000/14,000 = $ 8 sq.f.

Department Square footage Rate Total Linder's Dept. 1,100 $ 8 $8,800 Chiro's Dept. 1,800 $8 $14,400

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