Question

arathon 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 2019. Department Direct Expenses Square Feet Sales Advertising $ 15,000 1,080 Administrative 28,000 990 Shoes 123,000 3,330 $ 166,400 Clothing 18,000 3,600 93,600 The advertising department developed and distributed 240 advertisements during the year. Of these, 72 promoted shoes and 168 promoted clothing. Utilities expense of $45,000 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 $45,000 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

Departmental expense allocation spreadsheet
	Expenses total	Advertising	Administrative	Shoes	Clothing
Direct expenses	$184000	$15000	$28000	$123000	$18000
Utilities expense	$45000	$5400	$4950	$16650	$18000
Total department expense	$229000	$20400	$32950	$139650	$36000
Service department expense
Advertising department		($20400)		$6120	$14280
Administrative department			($32950)	$21088	$11862
Total expenses allocated	$229000	$0	$0	$166858	$62142
Allocation of cost for each department is as shown below
Utilities	Allocation base	percent of allocation base			Cost to be allocated	Allocated cost
Department		Numerator	Denominator	% total
Advertising	Floor space	1080	9000	12	45000	$5400
Administrative	Floor space	990	9000	11	45000	$4950
Shoes	Floor space	3330	9000	37	45000	$16650
Clothing	Floor space	3600	9000	40	45000	$18000
Total		9000
Advertising	Allocation base	percent of allocation base			Cost to be allocated	Allocated cost
Department		Numerator	Denominator	% total
Shoes	No. of ads	72	240	30	$20400	$6120
Clothing	No. of ads	168	240	70	$20400	$14280
Total		240				$20400
Administrative	Allocation base	percent of allocation base			Cost to be allocated	Allocated cost
Department		Numerator	Denominator	% total
Shoes	sales	166400	260000	64	$32950	$21088
Clothing	sales	93600	260000	36	$32950	$11862
Total		260000				$32950