Exercise 22-2 Departmental expense allocation-spreadsheet LO P2 Marathon Running

Question

Exercise 22-2 Departmental expense allocation-spreadsheet LO P2 Marathon Running Shop has two service departments (advertising and administrative) and two operating departments (shoes and clothing). During 2015, the departments had the following direct expenses and occupied the following amount of floor space. Direct Department Square Feet Expenses Advertising Administrative Shoes Clothing 15,000 22,000 118,000 19,000 1,540 700 5,180 6,580 The advertising department developed and distributed 230 advertisements during the year. Of these, 23 promoted shoes and 207 promoted clothing. The store sold $260,000 of merchandise during the year. Of this amount, $145,600 is from the shoes department, and $114,400 is from the clothing department. The utilities expense of $66,000 is an indirect expense to all departments. Complete a departmental expense allocation spreadsheet for Marathon Running Shop. The spreadsheet should assign (1) direct expenses to each of the four departments, (2) the $66,000 of utilities expense to the four departments on the basis of floor space occupied. (3) the advertising department's expenses to the two operating departments on the basis of the number of ads placed that promoted a department's products, and (4) the administrative department's expenses to the two operating departments based on the amount of sales.

Explanation / Answer

Utilities Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Floor Space Occupied Numerator Denominator % of Total Advertising                                          1,540                1,540                      14,000 11%               66,000                       7,260 Administrative                                             700                   700                      14,000 5%               66,000                       3,300 Shoes                                          5,180                5,180                      14,000 37%               66,000                    24,420 Clothing                                          6,580                6,580                      14,000 47%               66,000                    31,020 Totals                                       14,000              66,000.00 Advertising Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department No. of ads. Numerator Denominator % of Total Shoes                                                23                      23                            230 10%               22,260                       2,226 Clothing                                             207                   207                            230 90%               22,260                    20,034 Totals                                             230                    22,260 Administrative Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Sales Numerator Denominator % of Total Shoes                               145,600.00     145,600.00             260,000.00 56%         25,300.00              14,168.00 Clothing                               114,400.00     114,400.00             260,000.00 44%         25,300.00              11,132.00 Totals                               260,000.00              25,300.00 MARATHON RUNNING SHOP Departmental Expense Allocation Spreadsheet For Year Ended Dec 31, 2015 Expense Total Advertising Administrative Shoes Clothing Direct Expense                               174,000.00       15,000.00                22,000.00    118,000.00         19,000.00 Indirect Utilities Expenses                                 66,000.00          7,260.00                  3,300.00      24,420.00         31,020.00 Total Dept. Exp.                               240,000.00       22,260.00                25,300.00    142,420.00         50,020.00 Service Dept. Expenses: Advertising Deptt.     (22,260.00)        2,226.00         20,034.00 Administrative Deptt.             (25,300.00)      14,168.00         11,132.00 Total expenses allocated                               240,000.00                       -                                 -      158,814.00         81,186.00

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