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.

Depreciation Building Interest-Building mortgage Taxes-Building and land Gas (heating) expense Lighting expense Maintenance expense $ 27,000 40,500 12,000 3,750 4,500 8,250 Total occupancy cost $96,000 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 900 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 $30 per square foot and second-floor space worth $20 per square foot (excluding costs for heating, lighting, and maintenance). value: 5.00 points Required 1. Alloca te occupancy costs to the Linder and Chiro departments using the current allocation method (Round cost answers to 2 decimal places.) Total Department Linder's Dept. Chiro's Dept. Square Footage Rate

Explanation / Answer

Solution :

1. Allocation as per current method

2. Allocation table

Allocation

department square footage rate total Linder's dept 900 $8 $7200 Chiro's dept 1800 $8 $14400

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