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 600 Sales Department Advertising Administrative Shoes clothing Direct Expenses $ 12,000 31,000 85,000 16,000 420 2,340 2,640 $135,200 124,800 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 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 sales.

Answer 1

Answer

Utilities	Allcocation base	Numerator	Denominator	% of total	Cost to be allocated	Allocated Cost
Department:	Square feet
Advertising	Square feet	600	6000	10%	$50,000	$5,000
Administrative	Square feet	420	6000	7%	$50,000	$3,500
Shoes	Square feet	2340	6000	39%	$50,000	$19,500
Clothing	Square feet	2640	6000	44%	$50,000	$22,000
Totals		6000		100%		$50,000
Advertising	Allcocation base	Numerator	Denominator	% of total	Cost to be allocated	Allocated Cost
Department:	No. of ads
Shoes	No. of ads	14	140	10%	$17,000	$1,700
Clothing	No. of ads	126	140	90%	$17,000	$15,300
Totals		140		100%		$17,000
Administrative	Allcocation base	Numerator	Denominator	% of total	Cost to be allocated	Allocated Cost
Department:	Amount of sales
Shoes	Amount of sales	135200	260000	52%	$34,500	$17,940
Clothing	Amount of sales	124800	260000	48%	$34,500	$16,560
Totals		260000		100%		$34,500

	Expense Totals	Advertising	Administrative	Shoes	Clothing
Direct Expenses	$144,000	$12,000	$31,000	$85,000	$16,000
Indirect Utilities expense	$50,000	$5,000	$3,500	$19,500	$22,000
Total Dept Expense	$194,000	$17,000	$34,500	$104,500	$38,000
Service Depart Expenses:
Advertising Dept	$0	($17,000)		$1,700	$15,300
Administrative dept	$0		($34,500)	$17,940	$16,560
Total Expense allocated	$194,000	$0	$0	$124,140	$69,860