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15-29 Fixed-cost allocation. Baker University completed construction of its newest administrative building at the end of 2013. The University's first employees moved into the building on January 1, 2014. The building consists of office space, common meeting rooms (including a conference center), a cafeteria, and even a workout room for its exercise enthusiasts. The total 2014 building space of 250,000 square feet was utilized as follows % of Total Building Space Usage of Space Office space (occupied) Vacant office space Common meeting space 52% 8% 25% Workout room 5% Cafeteria 10% The new building cost the university $60 million and was depreciated using the straight-line method over 20 years. At the end of 2014 three departments occupied the building: executive offices of the president, accounting, and human resources. Each department's usage of its assigned space was as follows Department Executive Accounting Human resources Actual Office Space Used (sq. ft.) 32,500 52,000 45,500 Planned Office Space Used (sq. ft.) 24,800 52,080 47,120 Practical Capacity Office Space (sq. ft.) 36,000 66,000 48,000Explanation / Answer
1… Total building cost to be allocated for the Year 2014 = 60 mln./20 yrs.= 3 mln. a. Actual usage: Dept. Sq. ft. % to total Allocation(%*3 mln.) Executive 32500 25% 0.75 Accounting 52000 40% 1.2 Human Resources 45500 35% 1.05 Total 130000 100% 3 b. Planned Usage : Sq. ft. % to total Allocation(%*3 mln.) Executive 24800 20% 0.6 Accounting 52080 42% 1.26 Human Resources 47120 38% 1.14 Total 124000 100% 3 c.Practical capacity Sq. ft. % to total Allocation(%*3 mln.) Executive 36000 24% 0.72 Accounting 66000 44% 1.32 Human Resources 48000 32% 0.96 Total 150000 100% 3 2.. Usage of space % *250000 %*3 mln. Office space(Occupied) 52% 1.56 Vacant office space 8% 0.24 Common meeting space 25% 0.75 Workout room 5% 0.15 Cafeteria 10% 0.3 100% 3 a.All vacant office space is absorbed by the University & is not allocated to the departments Vacant office space Ie. 0.24 millions 240000 b. All Occupied office space costs are allocate on the basis of actual square footage used Office space(Occupied) 1.56 millions Actual usage: Dept. Sq. ft. % to total Allocation(%*1.56 mln.) Executive 32500 25% 0.39 Accounting 52000 40% 0.624 Human Resources 45500 35% 0.546 Total 130000 100% 1.56 c.All common area costs are allocated on the basis of a department's practical capacity Mlns. Common meeting space 0.75 Workout room 0.15 Cafeteria 0.3 Total costs for allocation 1.2 Practical capacity Sq. ft. % to total Allocation(%*1.2 mln.) Executive 36000 24% 0.288 Accounting 66000 44% 0.528 Human Resources 48000 32% 0.384 Total 150000 100% 1.2 3.. Summary of Allocation as per 2 --- vacant space costs (240000) not allocated-- Allocation of 1.56 mln.(office Space) Allocation of 1.2 mln.(Common area) Total Executive 0.39 0.288 0.678 Accounting 0.624 0.528 1.152 Human Resources 0.546 0.384 0.93 Total 1.56 1.2 2.76 2nd type of alloaction is a bit better than in 1, but leaving out vacant space costs cannot be substantiated as some amount of vacant spaces are necessary in any building for movement of men & materials. So, that also needs to be allocated on some basis. Practical capacity is a better basis for allocation of both office space costs& common area costs as that has been made available to the depts. & they should be efficient in utilising them.
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