Question

Required Information Problem 22-2A Allocation of bullding 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 o 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-Buslding Interest Building nortgage Taxes-Building and land Gas (heating) exponse Lighting expense Maintenance expense $31.580 47,250 14,0e 4,375 s,250 9.625 $112,e80 Total occupancy cost The building has 7,000 square feet on each floor. in prior periods, the accounting manoger merely divided the $112,000 occupancy cost by 14,000 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 deportment that occupies 1,900 square feet of floor space. In discussing the departmental reports. the second-floor manager questions whether using the seme rate per square foot for ll departments makes sense because the first-fioor 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 $10 per square foot (excluding costs for heating. ighting, and maintenance) Problem 22-2A Part 1 Required: 1. Allocate occupancy costs to the Linder and Chiro departments using the current allocation method. (Round cost answers to 2 decimal places.) Department Linder's Dept Rate square Footage Total Chiro's Dept

Answer 1

1	Allocation rate=Total occupancy cost/Total square footage of the building=112000/14000=$ 8 per square footage
	Allocation to departments:
	Department		Square footage	Rate	Total
	Linder's department		1000	8	8000
	(First-floor)
	Chira's department		1900	8	15200
	(Second-floor)
2	Occupancy costs based on market value:
			$
	Depreciation		31500
	Interest		47250
	Taxes		14000
	Total		92750
	Total market value:
					First floor	Second floor
	Square footage			a	7000	7000
	Market value per floor			b	30	10
	Total market value			a*b	210000	70000
	Allocation %				75%	25%
					210000/(210000+70000)	70000/(210000+70000)
	Cost per square footage:
					First floor	Second floor
	Allocation of occupancy cost			a	69562.5	23187.5
					(92750*75%)	(92750*25%)
	Square footage			b	7000	7000
	Cost per square footage			a/b	9.94	3.31
	Usage based cost-allocation rate=Heating,lighting and maintenance cost/Total square footage=(4375+5250+9625)/14000=19250/14000=1.375=$ 1.38 per square footage
	Total allocation rate:
					First floor	Second floor
	Cost per square footage based on Market				9.94	3.31
	Cost per square footage based on usage				1.38	1.38
	Total				11.32	4.69
	Allocation to departments:
	Department		Square footage	Rate	Total
	Linder's department		1000	11.32	11320
	(First-floor)
	Chira's department		1900	4.69	8911
	(Second-floor)