[The following information applies to the questions displayed below.] National B

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[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 Depreciation-Building $18,000 Interest-Building mortgage Taxes-Building and land Gas (heating) expense 2,500 Lighting expense Maintenance expense Total occupancy cost $64,000 27,000 8,000 3,000 5,500 The building has 4,000 square feet on each floor. In prior periods, the accounting manager merely divided the $64,000 occupancy cost by 8,000 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 1,800 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 $30 per square foot and second-floor space worth $20 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.) Square Rate Total Department Footage Linder's Chiro's

Explanation / Answer

Req 1 Department Square footage Rate Total Linder's 1000 8 1000 Chiro's 1800 8 14400 Req 2: Allocation of cost among floors and OH cost per sq. ft: First Second Depreciation (3:2) 10800 7200 Interest (3:2) 16200 10800 Taxes (3:2) 4800 3200 Gas expense (1:1) 1250 1,250 Lighting expense (1:1) 1500 1500 Maintenance (1:1) 2750 2,750 Total OH cost 37300 26,700 Divide : Total area 4000 4,000 OH cost per square feet 9.325 6.675 Department Square footage Rate Total Linder's 1000 9.325 9325 Chiro's 1800 6.675 12015

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