National Bank has several departments that occupy both floors of a two-story bui

Question

National 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.

  Allocate occupancy costs to the Linder and Chiro departments using the current allocation method. (Round cost answers to 2 decimal places.)

Allocate the depreciation, interest, and taxes occupancy costs to the Linder and Chiro departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Linder and Chiro departments in proportion to the square feet occupied (ignoring floor space market values). (Round cost answers to 2 decimal places. Round your intermediate calculations to 2 decimal places.)

The building has 6,000 square feet on each floor. In prior periods, the accounting manager merely divided the $96,000 occupancy cost by 12,000 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.

    Diane Linder manages a first-floor department that occupies 1,100 square feet, and Juan Chiro 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 $40 per square foot and second-floor space worth $10 per square foot (excluding costs for heating, lighting, and maintenance).

National 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.

Explanation / Answer

Details Linder   Chiro Total Floor Space                      1,100                   1,800          2,900 Proportion of Floor space occupied: 37.93% 62.07% Rent per sq feet                            40                         10 Market value of space              44,000.00           18,000.00        62,000 Proportion of Market Value= 70.97% 29.03% Cost Details Amt$ Allocation base Linder   Chiro Depreciation - Building                      27,000 Relative Market value of the floor space        19,161       7,839 Interest-Building Mortgage                    40,500 Relative Market value of the floor space        28,742    11,758 Taxes-Building & Land                    12,000 Relative Market value of the floor space          8,516       3,484 Gas(Heating ) Expenses                      3,750 Proportion of Sq feet occupied          2,661       1,089 Lighting Expenses                      4,500 Proportion of Sq feet occupied          3,194       1,306 Maintenance Expenses                      8,250 Proportion of Sq feet occupied          5,855       2,395

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