National Bank has several departments that occupy both floors of a two-story bui

Question

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 Interest-Building mortgage Taxes-Building and land Gas (heating) expense Lighting expense Maintenance expense Total occupancy cost $ 22,500 33,750 10,000 3,125 3,750 6,875 $ 80,000 The building has 5,000 square feet on each floor. In prior periods, the accounting manager merely divided the $80,000 occupancy cost by 10,000 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 $10 per square foot (excluding costs for heating, lighting, and maintenance) Required 1. Allocate occupancy costs to the Linder and Chiro departments using the current allocation method. (Round cost answers to 2 decimal places.)

Explanation / Answer

Req 1. Department Square Fotage Rate Total Linder's Dept 900 10 9000 Chiro's dept 1700 10 17000 Req 2: Apportionment of cost among floors and rate of each floor: First Second Depreciation 18000 4,500 Interest 27000 6750 Taxes 8000 2000 Gas 1562.5 1562.5 Lighting expense 1875 1,875 maintenance expense 3437.5 3,438 Total Allocated expense 59875 20125 Divide: Number o sq feet area 5000 5000 Rate per sq. ft 11.975 4.025 Department Square Fotage Rate Total Linder's Dept 900 11.975 10777.5 Chiro's dept 1700 4.025 6842.5

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