The following information applies to the questions displayed below.] City Bank h
ID: 2561436 • Letter: T
Question
The following information applies to the questions displayed below.]
City 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.
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.
Laura Diaz manages a first-floor department that occupies 1,000 square feet, and Lauren Wright 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 $20 per square foot (excluding costs for heating, lighting, and maintenance).
References
Section BreakDifficulty: 3 HardLearning Objective: 21-P1 Assign overhead costs using twostage cost allocation.
1.
value:
10.00 points
Required information
Allocate occupancy costs to the Diaz and Wright departments using the current allocation method. (Omit the "$" sign in your response.)
References
WorksheetLearning Objective: 21-C3 Appendix 21A-Explain transfer pricing and methods to set transfer prices.
Difficulty: 3 HardLearning Objective: 21-P1 Assign overhead costs using twostage cost allocation.
Ask your instructor a questionCheck my work
2.
value:
10.00 points
Required information
Allocate the depreciation, interest, and taxes occupancy costs to the Diaz and Wright departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Diaz and Wright departments in proportion to the square feet occupied (ignoring floor space market values). (Round your cost per Sq. ft rate to 2 decimal places and final answers to the nearest whole number. Omit the "$" sign in your response.)
References
WorksheetLearning Objective: 21-C3 Appendix 21A-Explain transfer pricing and methods to set transfer prices.
Difficulty: 3 Hard
City 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.
Explanation / Answer
Answer 1
Under the current allocation method the rate is 8 per square feet and therefore for Diaz's department the cost would come as 8*1000=8000 and for Wright's department, it would come as 1800*8=14400
Answer 2
Total of depreciation, interest, and taxes occupancy costs = 18000+27000+8000= 53000.
Cost allocated to first floor= 53000*3/5=31800. Per square foot cost= 31800/4000= 7.95
Cost allocated to first floor= 53000*2/5=21200. Per square foot cost= 21200/4000= 5.30
hence cost allocated to Diaz= 1000*7.95=7950
Cost allocated to Wright= 1800*5.30= 9540
heating, lighting, and maintenance costs=2500+3000+5500=11000
Per square feet cost= 11000/8000=1.375
hence cost allocated to Diaz= 1000*1.375=1375
Cost allocated to Wright= 1800*1.375= 2475
Final answer : cost allocated to Diaz= 7950+1375= 9325
cost allocated to Wright= 9540+2475= 12015
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.