Q22. A retailer pays $140,000 rent each year for its two-story building. The spa

Question

Q22. A retailer pays $140,000 rent each year for its two-story building. The space in this building is occupied by five departments as specified here. Jewelry department 1,760 square feet of first-floor space Cosmetics department 2,640 square feet of first-floor space Housewares department 1,892 square feet of second-floor space Tools department 704 square feet of second-floor space Shoes department 1,804 square feet of second-floor space The company allocates 65% of total rent expense to the first floor and 35% to the second floor, and then allocates rent expense for each floor to the departments occupying that floor on the basis of space occupied. Determine the rent expense to be allocated to each department.

Explanation / Answer

Total rent expenses = $140,000

Allocation to first floor

= 65% of total rent

= 65% of $140,000

= $91,000

Allocation to second floor

= 35% of total rent

= 35% of $140,000

= $49,000

Total space allocated to first floor

= Jewelry department 1,760 square feet + Cosmetics department 2,640 square feet

= 4,400 square feet

So, allocation of rent per square feet for first floor

= Total rent allocated to first floor / total space of first floor

= $ 91,000 / 4,400

= $20.6818 per square feet

So, allocation to departments

= Rent per square feet x Allocated space

Jewelry department

= $20.6818 x 1,760

= $36,400

Cosmetics department

= $20.6818 x 2,640

= $54,600

Similarly, allocation of rent per square feet for second floor

= Total rent allocated to second floor / total space of second floor

= $ 49,000 / (1,892 + 704 + 1,804)

= $49,000 / 4,400

= $ 11.1363 per square feet

So, allocation to departments

= Rent per square feet x Allocated space

Housewares department

= $ 11.1363 x 1,892

= $21,070

Tools department

= $ 11.1363 x 704

= $7,840

Shoes department

= $ 11.1363 x 1,804

= $20,090

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