Exercise 22-2 Departmental expense allocation-spreadsheet LO P2 Marathon Running
ID: 341654 • Letter: E
Question
Exercise 22-2 Departmental expense allocation-spreadsheet LO P2 Marathon Running Shop has two service departments (advertising and administrative) and two operating departments (shoes and clothing). During 2015, the departments had the following direct expenses and occupied the following amount of floor space. Direct Expenses Square Feet 1,540 700 5,180 6,580 Department Advertising Administrative Shoes Clothing 15,000 22,000 18,000 19,000 The advertising department developed and distributed 230 advertisements during the year. Of these, 23 promoted shoes and 207 promoted clothing. The store sold $260,000 of merchandise during the year. Of this amount, $145,600 is from the shoes department, and $114,400 is from the clothing department. The utilities expense of $66,000 is an indirect expense to all departments. Complete a departmental expense allocation spreadsheet for-Marathon Running Shop. The spreadsheet should assign (1) direct expenses to each of the four departments, (2) the $66,000 of utilities expense to the four departments on the basis of floor space occupied, (3) the advertising department's expenses to the two operating departments on the basis of the number of ads placed that promoted a department's products, and (4) the administrative department's expenses to the two operating departments based on the amount of salesExplanation / Answer
Marathon Running Shop
Departmental Expense Allocation Spreadsheet –
Marathon Running Shop
Departmental Expense Allocation Spreadsheet
for the year ended December 31, 2015
Expenses Total
Advertising
Administrative
Shoe
Clothing
Direct Expenses
$15,000
$22,000
$118,000
$19,000
Indirect Utilities expenses
$7,260
$3,300
$24,420
$31,020
Total dept. expenses
$22,260
$25,300
$142,420
$50,020
Service Dept. Expenses:
Advertising Dept.
$2,226
$20,034
Administrative Dept.
$14,168
$11,132
Total expenses allocated
$16,394
$31,166
Total expenses
$158,814
$81,186
Working –
Utilities
Allocation Base
Percent of Allocation Base
Cost to be Allocated
Allocated Cost
Department
Floor Space
Numerator
Denominator
% of total
$66,000
Advertising
1,540 square feet
1,540
14,000
11%
$7,260
Administrative
700 sq. ft
700
14,000
5%
$3,300
Shoes
5,180 sq.ft
5,180
14,000
37%
$24,420
Clothing
6,580 sq.ft
6,580
14,000
47%
$31,020
Totals
14,000 sq.ft
100%
$66,000
Advertising
Allocation Base
Percent of Allocation Base
Cost to be allocated
Allocated Cost
Department
Number of advertisements
Numerator
Denominator
% of total
$22,260
Shoe
23
23
230
10%
$2,226
Clothing
207
207
230
90%
$20,034
Total
230
100%
$22,260
Administrative
Allocation Base
Percent of Allocation Base
Cost to be Allocated
Allocated Cost
Department
Proportion of sales
Numerator
Denominator
% of total
$25,300
Shoes
$145,600
145,600
260,000
56%
$14,168
Clothing
$114,400
$114,400
$260,000
44%
$11,132
Total
$25,300
Note:
For allocation purposes, the service departments’ (Advertising and Administrative) total costs are considered, Which include the allocated indirect expenses. Hence, advertising cost to be allocated is 15,000 + $7,260 = $22,260 and administrative cost to be allocated is $22,000 + $3,300 = $25,300.
Marathon Running Shop
Departmental Expense Allocation Spreadsheet
for the year ended December 31, 2015
Expenses Total
Advertising
Administrative
Shoe
Clothing
Direct Expenses
$15,000
$22,000
$118,000
$19,000
Indirect Utilities expenses
$7,260
$3,300
$24,420
$31,020
Total dept. expenses
$22,260
$25,300
$142,420
$50,020
Service Dept. Expenses:
Advertising Dept.
$2,226
$20,034
Administrative Dept.
$14,168
$11,132
Total expenses allocated
$16,394
$31,166
Total expenses
$158,814
$81,186
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