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.
  

Department	Direct Expenses				Square Feet				Sales
Advertising	$	16,000				900
Administrative		29,000				500
Shoes		110,000				3,400			$	139,200
Clothing		14,000				5,200				100,800

  
The advertising department developed and distributed 120 advertisements during the year. Of these, 12 promoted shoes and 108 promoted clothing. Utilities expense of $71,000 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 $71,000 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

1
Utilities	Allocation basis	Percentage of allocation base			Cost to be allocated	Allocated cost
Department	Floor space occupied	Numerator	Denominator	% of total
Advertising	900	900	10000	9%	71000	6390
Administrative	500	500	10000	5%	71000	3550
Shoes	3400	3400	10000	34%	71000	24140
Clothing	5200	5200	10000	52%	71000	36920
	10000			100%		71000
Advertising	Allocation basis	Percentage of allocation base			Cost to be allocated	Allocated cost
Department	No. Of ads	Numerator	Denominator	% of total
Shoes	12	12	120	10%	22390	2239
Clothing	108	108	120	90%	22390	20151
	120			100%		22390
Advertising = 16000+6390
	22390
Administrative	Allocation basis	Percentage of allocation base			Cost to be allocated	Allocated cost
Department	No. Of ads	Numerator	Denominator	% of total
Shoes	139200	139200	240000	58%	32550	18879
Clothing	100800	100800	240000	42%	32550	13671
	240000			100%		32550
Administrative	29,000+3550

Marathon Running Shop Department Expense Allocation Spread sheet For year ended december 31
	Expense Totals	Advertising	Administrative	Shoes	Clothing
Direct expense	169000	16000	29000	110000	14000
Indirect Utilities expense	71000	6390	3550	24140	36920
Total Dept expense	240000	22390	32550	134140	50920
Service department expense
Advertising department expense		-22390		2239	20151
Administrative department expense			-32550	18879	13671
Total Expense allocated	240000	0	0	155258	84742