Question

Marathon Running Shop has two service departments (advertising and administrative) and two operating departments (shoes and clothingl. 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 2019. Square Feet Department Advertising Administrative Shoes Clothing Direct Expenses $ 11, Bee 20,000 132.ee 19,00 1.lee 5,280 $114, 460 185,608 The advertising department developed and distributed 160 advertisements during the year. Of these. 32 promoted shoes and 128 promoted clothing. Utilities expense of $75,000 is an indirect expense to all departments. Complete a departmental expense alocation spreadsheet for Marathon Running Shop. The spreadsheet should assign (1) direct expenses to each of the four departments, (2) the $75,000 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 Utilities Allocation Base Percent of Allocation Base Cost to be located Cost Allocated Allocated Cost Numerator 96 of Total Department Advertising Administrative Shoes Clothing Tesis Cost to be Advertising Allocation Base Pergent of Allocation Base Alected Cost Allocated Department Numerator Denominator of Total Shoes Clothing Totals Cost to be Administrative Allocation Base Percent of Allocation Base Allocated Cost Allocated Department Numerator MARATHON RUNNING SHOP Departmental Expense Allocation Spreadsheet For Year Ended December 31, 2018 Expense Totals Advertising Administrative Shoes Indirect is expenses 0 Totalt 000 Service Dept. Expenses Advertising Dept Administrative Dept. Total expenses allocated O sol s0

Answer 1

1.

	Allocation base	percentage of allocation			Cost to be allocated	Allocated cost
Department	Floor space	Numerator	Denominator	% of total
advertising	770	770	11000	7%[770/11000*100]	$75000	$5250[75000*7%]
Administrative	1100	1100	11000	10%[1100/11000*100]	$75000	$7500[75000*10%]
Shoes	5280	5280	11000	48%[5280/11000*100]	$75000	$36000[75000*48%]
Clothing	3850	3850	11000	35%[3850/11000*100]	$75000	$26250[75000*35%]
Totals	11000			100%		$75000

utility expense have been allocated on the basis of square feet.

2.

Advertising	Allocation base	Percentage of allocation			Cost to be allocated	Allocated cost
Department	Number of Ads	Numerator	Denominator	% of totals
Shoes	32	32	160	20% [32/160]	16250	$3250[16250*20%]
Clothing	128	128	160	80% [128/160]	16250	13000[16250*80%]
Totals	160			100%		$16250

Advertising expense to be allocated = direct expense+ utility expense allocated to advertising

=11000+5250

=16250

3.

Administration	Allocation base	Percentage of allocation			Cost to be allocated	Allocated cost
Department	sales	Numerator	Denominator	% of totals
Shoes	114400	114400	220000	52% [114400/220000]	27500	$14300[27500*52%]
Clothing	105600	105600	220000	48%[105600/220000]	27500	$13200[27500*48%]
Totals	220000			100%		$27500

Administrative cost to be allocated = 20000+7500= 27500

4.

	Expense Total	Advertising	Administrative	Shoes	Clothing
Direct expenses	182000	11000	20000	132000	19000
utilities expenses	75000	5250	7500	36000	26250
Total department expenses		16250	27500	168000	45250
Service department expenses
Advertising		(16250)		3250	13000
administrative			(27500)	14300	13200
Total expense allocated	257,000	0	0	185550	71450