The following information applies to the questions displayed below. National Ban
ID: 2494231 • Letter: T
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 7.000 square feet on each floor. In prior periods, the accounting manager merely divided the $112,000 occupancy cost by 14.000 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 1.100 square feet, and Juan Chiro manages a second-floor department that occupies 1.800 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). Required: Allocate occupancy costs to the Linder and Chiro departments using the current allocation method. (Round cost answers to 2 decimal places.) Check my work 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 your intermediate calculations to 2 decimal places.)Explanation / Answer
1. Allocate the occupancy cost in Linder & Chiro Departments using current allocation method:
2. 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 Linder and Chiro departments in proportion to the square feet accupied ;
=>Total of depreciation, interest and taxes occupancy costs = $92750
Total market value of the 2 floors = 280000 + 140000 =$ 420000
Per $ of Market value, the occupancy cost is = $92750 / $420000 = 0.2208
Linder allocation = 1100 * 40 * 0.2208 = $9715.20
Chiro allocation = 1800 * 20 * 0.2208 = $ 7948.80
=> Total of heating, lighting and maintenance costs = $19250
Allocation rate = $1.375 / Sq. Ft.
Linder allocation = 1100 * 1.375 = $1512.50
Chiro allocation = 1800 * 1.375 = $2475.00
Department Square Footage Rate Total$ Linder's Dept. 1100 8.00 8800 Chiro's Dept. 1800 8.00 14400Related Questions
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