Question

Marathon Running Shop has two service departments (advertising and administrative) and two operating departments (shoes and clothing). The table that follows shows the direct expenses incurred and square footage occupied by all four departments, as well as total sales for the two operating departments for the year 2017 Square Feet Department Advertising Administrative Shoes Clothing Direct Expenses $12.00 31,000 85,000 16,000 2.340 2.600 $135,290 124,300 The advertising department developed and distributed 140 advertisements during the year. Of these, 14 promoted shoes and 126 promoted clothing Utilities expense of $50,000 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 $50,000 of utilities expense to the four departments on the basis of foor 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

Answer 1

1.we will allocate utilities cost to departments on the basis of floor space

	Allocation base	percentage of allocation			Cost to be allocated	Allocated cost
Department	Floor space	Numerator	Denominator	% of total
advertising	600	600	6000	10%[600/6000*100]	$50,000	$5,000[$50,000*10%]
Administrative	420	420	6000	7%[420/6000*100]	$50,000	$3,500[$50,000*7%]
Shoes	2340	2340	6000	39%[2340/6000*100]	$50,000	$19,500[$50,000*39%]
Clothing	2640	2640	6000	44%[2640/6000*100]	$50,000	$22,000[$50,000*44%]
Totals	6000			100%		$50,000

utility expense have been allocated on the basis of square feet.

2. Allocate advertising cost on the basis of number of ads. remember advertising cost is = given direct expense+utility exoense allocated to advertising department

Advertising	Allocation base	Percentage of allocation			Cost to be allocated	Allocated cost
Department	Number of Ads	Numerator	Denominator	% of totals
Shoes	14	14	140	10% [14/140]	$17,000	$1700[$17,000*10%]
Clothing	126	126	140	90% [126/140]	$17,000	$15,300[17000*90%]
Totals	140			100%		$17000

Advertising expense to be allocated = direct expense+ utility expense allocated to advertising

=12000+5000

=$17,000

3.allocate administrative cost on the basis of sales

Administration	Allocation base	Percentage of allocation			Cost to be allocated	Allocated cost
Department	sales	Numerator	Denominator	% of totals
Shoes	$135,200	$135,200	$260,000	52% [$135,200/$260,000]	$34,500	$17,940[$34,500*52%]
Clothing	$124,800	$124,800	$260,000	48%[124,800/260,000]	$34,500	$16,560[$34,500*48%]
Totals	$260,000			100%		$34,500

Administrative cost to be allocated = $31,000+$3,500= $34,500

4. expense allocation spradsheet

	Expense Total	Advertising	Administrative	Shoes	Clothing
Direct expenses	$144,000	$12,000	$31,000	$85,000	$16,000
utilities expenses	$50,000	$5000	$3500	$19,500	$22,000
Total department expenses		$17,000[12000+5000]	$34,500[$31,000+3500]	$104,500	$38,000
Service department expenses
Advertising		($17,000)		$1,700	$15,300
administrative			(34,500)	$17,940	$16,560
Total expense allocated	$194,000	0	0	$124,140 [$104,500+$1,700+$17,940]	$69,860 [38000+15300+16560]