[The following information applies to the questions displayed below.] National B
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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.
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).
Department Square Footage Rate Total Linder’s Department 900 $9.00 $8,100 Chiro’s Department 1,700 9.00 15,300
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.
Explanation / Answer
Calculation of Cost for each department:
Department
Square Footage
Rate
Total
A
B
A*B
Linders
900
$ 8.00
$ 7,200.00
Chiros
1700
$ 8.00
$ 13,600.00
Calculation of Cost for each department:
Department
Square Footage
Rate
Total
A
B
A*B
Linders
900
$ 8.00
$ 7,200.00
Chiros
1700
$ 8.00
$ 13,600.00
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