Question

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 $18,000 27,000 8,000 2,500 3,000 5,500 $64,000 Total occupancy cost 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 occupied Diane Linder manages a first-floor department that occupies 1,000 square feet, and Juan Chiro manages a second-floor department that occupies 1,700 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 $40 per square foot and second-floor space worth $10 per square foot (excluding costs for heating, lighting, and maintenance) roblem 22-2A Part 2 . Allocate the depreciation, interest, and taxes occupancy costs to the Linder and Chiro departments in proportion to the relative arket values of the floor space. Allocate the heating, lighting, and maintenance costs to the Linder and Chiro departments in roportion to the square feet occupied (ignoring floor space market values). (Round cost answers to 2 decimal places. Round your termediate calculations to 2 decimal places. 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.) Department Square Footage RateTotal Linder's Department 1,000 Chiro's Department 1,700

Answer 1

solution: Part 1: Department Square Footage Rate Total Linder's Dept. Chiro's Dept. 1,000 1,700 8 8000 8 13600 Part 2: 1x.partment: Linder's Dept. Chiro's Dept. ToGal 1,000 11.98 |11980 1,7004.03 6851 Squar:1-c3oia拶: Rai."

Working for Part 2: Total Value-Based Usage-Based Costs Costs Costs Depreciation-Building Interest-Buiding mortgage Taxes-Building and land Gas (heating) expense Lighting expense Maintenance expense Total 18000 27,000 8,000 2,500 3,000 5,500 64000 18000 27000 8000 2,500 3,000 5,500 11000 53000 calculation of Allocation rates for value based cost: Square Value per Footage Sq. Ft Floor Total Market value % of total Allocated cost | Cost d-c/total e-c*53000 f-e/a c a *b First floor Second floor Total market value 4,000 4,000 160,000| 80.00% 42,400.001 10.60 10,600.00 12.65 40 10 40,000 200,000 20.00%) 53,000 Usage-based costs allocation rate -11000/8000 1.38 per sq. ft. Calculation of total alloc ation rates Floor First floo Second floor Value 10.60 2.65 Usage 1.38 1.38 Total 11.98 4.03