Stewart Condos Corporation is a small company owned by Dennis Hatch. It leases t

Question

Stewart Condos Corporation is a small company owned by Dennis Hatch. It leases three condos of differing sizes to customers as vacation facilities. Labor costs for each condo consist of maid service and maintenance cost. Other direct operating costs consist of interest and depreciation. The direct operating costs for each condo follow:

Condo 1$30,000  $72,000 Condo 2 35,000   80,000 Condo 3 45,000   88,000 Total$110,000  $240,000
Indirect operating expenses, which amounted to $96,000, are allocated to the condos in proportion to the amount of other direct operating costs incurred for each.

Assuming that the amount of rent revenue from Condo 2 is $192,000, what amount of income did it earn?

Explanation / Answer

Solution:

Rent revenue from Condo 2 = $192,000

Direct operating cost from Condo 2 = $35,000 + $80,000 = $115,000

Total other direct operating cost = $240,000

Allocated indirect expenses to Condo 2 = $240,000 * 80 / 240 = $80,000

Income earned by Condo 2 = Rent revenue - Direct operating cost - Allocated indirect operating expenses

= $192,000 - $115,000 - $80,000 = ($3,000)

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