Question

Required Information Problem 22-2A Allocation of building occupancy costs to departments LO P2 [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 Interest-Building mortgage Taxes-Building and land Gas (heating) expense Lighting expense Maintenance expense Total occupancy cost $ 18,eee 27. 8,000 2. See 3. eee S. See $64.ee 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 occupled. Diane Linder manages a first floor department that occuples 1,000 square feet, and Juan Chiro manages a second floor department that occuples 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 $10 per square foot (excluding costs for heating, lighting, and maintenance). Problem 22-2A Part 2 2. Allocate the depreciation, Interest, and taxes occupancy costs to the Linder and Chiro departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Linder and Chiro departments in proportion to the square feet occupied fignoring floor space market values). (Round cost answers to 2 decimal places. Round your Intermediate calculations to 2 decimal places.) Square Footage Rate Total Department Under's Department Chiro's Department

Answer 1

S.l No	Total Square feet	8000
a	Each floor space	4000
b	First floor department	1000
c	Second floor department	1800
d	First floor space market worth	30	dollars
e	Second floor space market worth	10	dollars
f	Allocation Rate 1
	Depreciation	18000
	Interest	27000
	Taxes	8000
	Total	53000
	Previously the ratio of cost allocated is 1 : 1 now weighted ratio 30 : 10
g	Allocation for First floor (53000*3/4)	39750
h	Allocation for second floor (53000*1/4)	13250
i	Rate for first floor (g/a)	9.94
j	Rate for second floor (h/a)	3.31
K	Allocation Rate 2
	Gas	2500
	Lighting Cost	3000
	Maintenance expense	5500
	Total	11000
	Allocation rate for First floor (11000/8000	1.38
	Allocation rate for second floor (11000/8000	1.38
I	Allocation of cost to departments	First floor department	Second floor department
	Allocation Rate 1	9.94	3.31
	Allocation Rate 1	1.38	1.38
J	Total	11.32	4.69
K	Square feet occupied	1000	1800
L	Cost (J*K)	11320	8442