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 $22,500 33,750 10,000 3,125 3,750 6,875 $80,000 Total occupancy cost 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 1,000 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 $20 per square foot (excluding costs for heating, lighting, and maintenance)

Explanation / Answer

Req 1. Department Square Fotage Rate Total Linder's Dept 1000 8 8000 Chiro's dept 1900 8 15200 Req 2: Apportionment of cost among floors and rate of each floor: First Second Depreciation 15000 7,500 Interest 22500 11250 Taxes 6667 3333 Gas 1562.5 1562.5 Lighting expense 1875 1,875 maintenance expense 3437.5 3,438 Total Allocated expense 51042 28958 Divide: Number o sq feet area 5000 5000 Rate per sq. ft 10.21 5.79 Department Square Fotage Rate Total Linder's Dept 1000 10.21 10210 Chiro's dept 1900 5.79 11001

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