Question

Required Information [The folowing information applles 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 perlod follow Depreciation-Building Interest-Building mortgage Taxes-Building and land Gas (heating) expense Lighting expense Maintenance expense Total oeeupancy cost $ 18,000 2,000 8,000 2, 500 3,000 5, 500 $ 64,000 The building has 4,000 square feet on each floor. In prior pertods, t the accounting manager merely divided the $64,000 occupancy cost by 8,000 squ bulding occupancy cost equal to this rate times the number of square feet that It occupled are feet to find an average cost of $8 per square foot and then charged each department a Dlane Linder manages a first-floor department that occuples 1.000 square feet, and Juan Chiro manages a second-floor department that occuples 1800 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 simllar space that shows firstfloor space worth $40 per square foot and second-floor space worth $10 per square foot (excluding costs for heating, lighting. and maintenance). 2 Allocate the depreclation, 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 occupled (gnoring floor space market values). (Round cost answers to 2 decimal places. Round your Intermedlate calculations to 2 decimal places.) Square Rate Total Department Linder's Department Chiro's Department

Answer 1

Relative market values of the department are used to allocate the occupancy costs for depreciation , interest and taxes
Heating, lighting and maintenance costs are allocated to departments on both floors at the average rate per square feet.
	Total costs	Volume based costs	Usage based costs
Depreciation	$         18,000.00	$                       18,000.00
Interest	$         27,000.00	$                       27,000.00
taxes	$           8,000.00	$                         8,000.00
gas	$           2,500.00		$                 2,500.00
lighting	$           3,000.00		$                 3,000.00
Maintenance	$           5,500.00		$                 5,500.00
	$         64,000.00	$                       53,000.00	$              11,000.00
Value based allocation rate for each floor should be determined through the following steps.
Compute the market value of each floor :
Floor	Square footage	Value per square foot	Total
First floor	4000	40	160000
second floor	4000	10	40000
			200000
Allocate 53000 to each floor on the basis of percentage of market value
Floor	market value	% of total markt value	Allocated cost	Cost per sq. ft
First floor	160000	80%	42400	10.6
second floor	40000	20%	10600	2.65
	200000		53000
Usage based costs allocation rate for both the floors should be determined by dividing the total usage based costs by total area of both the floors.
usage based allocation rate =		1.375	per sq.ft
Floor	Value based allocation rate	Usage based allocation rate	Total
first floor	10.6	1.38	11.98
second floor	2.65	1.38	4.03
The occupancy costs should be allocated on basis of above rates
Department	Square footage	Rate	Total
L's dept	1000	11.98	11980
C's dept	1800	4.03	7254