Question

Required information [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 $27,000 Interest-Building 40,500 mortgage Taxes-Building and 12,000 land Gas (heating) expense 3,750 Lighting expense 4,500 Maintenance expense 8,250 Total occupancy cost $96,000 The building has 6,000 square feet on each floor. In prior periods, the accounting manager merely divided the $96,000 occupancy cost by 12,000 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 occupied Diane Linder manages a first-floor department that occupies 1,100 square feet, and Juan Chiro manages a second-floor department that occupies 1700 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 $20 per square foot (excluding costs for heating, lighting, and maintenance). 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 (ignoring floor space market values). (Round cost answers to 2 decimal places. Round your intermediate calculations to 2 decimal places.) Answer is complete but not entirely correct. Square Department Rate Total Footage Linder's $ Department 1.100 0.22 $ 242 Chiro's 1,700 0.22 Department $ 374

Answer 1

Working Note:-

	Total cost	Value based	Usage based
Depreciation- Building	$27000	$27000
Interest -Building mortage	$40500	$40500
Taxes -Building and land	$12000	$12000
Gas(heating ) expanses	$3750		$3750
Lighting expanses	$4500		$4500
Maintenance expenses	$8250		$8250
Total	$96000	$79500	$16500

	Square feet (a)	Value per Sq .feet(b)	Total maket value (c)= a X b	℅ of Total d	Allocated cost e=$79500 X d	Cost per unit f=e/a
First Floor	6000	$30	$180000	60℅	$47700	$7.95
Second floor	​​​​​​6000	$20	$120000	40%	$31800	$5.30
	12000		$300000		$79500

Usage based cost allocation rate = $16500/12000sq.ft =$1.38

Calculation of allocation rates

Floor	Value	Usage	Total
First floor	$7.95	$1.38	$9.33
Second floor	$5.30	$1.38	$6.68