Problem 22-2A Allocation of building occupancy costs to departments LO P2 The fo
ID: 2557357 • Letter: P
Question
Problem 22-2A Allocation of building occupancy costs to departments LO P2 The following Information applies to the questions displayed below. National Bank has several departments that occupy both floors of a two-story building. The depertmental occounting 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 Toxes-Building and land Gas (heating) expense Lighting expense Maintenance expense S 22,500 33.750 10,000 3.125 3.750 6,875 Total occupancy cost $ 80,000 The building has 5,000 square feet on each floor. In prior periods, the accounting manager merely divided the $80,000 occupancy cost by 10,000 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 1000 square feet, and Juan Chiro manages second-floor department that occupies 1800 square feet of floor space. In discussing the deportmental reports, the second-floor manager questions whether using the same rate per square foot for all departments makes sense becouse 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 spoce worth $10 per square foot (excluding costs for heating, lighting, and maintenance)Explanation / Answer
Answer
Departments:
Square Footage
Rate per square feet
Total
Linder's Deptt
1000
$8
$8000
Chiro Deptt
1800
$8
$14400
Working
Linder's Deptt
Chiro Deptt
Worth
$40 per square foot
$10 per square foot
Ratio
4
1
Allocation 1st
Depreciation
22500
Interest
33750
taxes
10000
Total
$66,250
Linder's Deptt
Chiro Deptt
Allocation of $66250 in ratio of 4:1
$53000
$13250
Allocation 2nd
Gas
3125
Lightning
3750
Maintenance expense
6875
Total
$13750
Total Square Feet
10000
rate per square feet
$1.38
Departments:
Square Footage
Rate per square feet
Total
Linder's Deptt
1000
$1.38
$1380
Chiro Deptt
1800
$1.38
$2484
Departments:
Square Footage
Rate per square feet
Total
Linder's Deptt
1000
$8
$8000
Chiro Deptt
1800
$8
$14400
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