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newconnect.mheducation.com HP 22 6 Saved Help Save& Exit Submit Check my work 4 0 Required information Part 2 of 2 The folowing 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 3.75 points eBook Print References Depreciation-Building Interent-Building mortgage Taxes-Building and land Gas (heating) expense Lighting expense Maintenance expense Total o0oupancy cost 31,500 47,250 14,000 ,375 ,250 112,000 The building has 7000 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 1,900 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 $10 per square foot (excluding costs for heating, lighting, and maintenance). 2. Allocate the depreciation, interest, and taxes occupancy costs to the Linder and Chiro departments in proportion to the relative Prev 4 of 4 Next>Explanation / Answer
Allocation of fixed expenses:
Depreciation - Building
Area Market rate Total market Value First floor space 7000 40 280000 Second floor space 7000 10 70000 Total floor area 14000 350000 Linder office space 1100 40 44000 Chiro 1900 10 19000Allocation of fixed expenses:
Depreciation - Building
31500 Interest - Building Mortgage 47250 Taxes - Building and land 14000 Total 92750 Total market value 350000 Expenses as % of market value 26.50% Share of these expenses to Linder 11660 Share of these expenses to Chiro 5035Related Questions
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