[The following information applies to the questions displayed below.] National B
ID: 2422413 • Letter: #
Question
[The following information applies to the questions displayed below.] 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 $ 36,000
Interest—Building mortgage 54,000
Taxes—Building and land 16,000
Gas (heating) expense 5,000
Lighting expense 6,000
Maintenance expense 11,000
Total occupancy cost $ 128,000
The building has 8,000 square feet on each floor. In prior periods, the accounting manager merely divided the $128,000 occupancy cost by 16,000 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 1,700 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 $20 per square foot (excluding costs for heating, lighting, and maintenance).
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.)
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.)
Explanation / Answer
Allocation of Depreciation, Interest, taxes occupancy costs to the Linder and Chiro departments in proportion to relative market values of floor space.
Relative market value of floor space
Linder : 900 sft * $40 per square feet = $36000
Chiro : 1700 sft * $20 per square feet = $34000
the ratio for division is 36000:34000 =36:34
Particulars basis of division Linder $ Chiro $
Depreciation $36000 (36:34) (36000*36/70) 18514.29 (36000*34/70) 17485.71
Interest $54000 (36:34) (54000*36/70) 27771.43 (54000*34/70) 26228.57
Taxes $16000 (36:34) (16000*36/70) 8228.57 (16000*34/70) 7771.43
Allocation of Heating, Lighting, Maintenance costs to Linder and Chiro departments in proportion to square feet occupied
Particulars basis of division Linder $ Chiro $
Heating $5000 (900:1700) (5000*9/26) 1730.77 (5000*17/26) 3269.23
Lighting $6000 (900:1700) (6000*9/26) 2076.92 (6000*17/26) 3923.08
Maintenance $11000 (900:1700) (11000*9/26) 3807.69 (11000*17/26) 7192.31
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