Marathon Running Shop has two service departments (advertising and administrativ
ID: 2437501 • Letter: M
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 $ 18,000 1,120 Administrative 25,000 1,400 Shoes 103,000 7,140 $ 273,000 Clothing 15,000 4,340 77,000The advertising department developed and distributed 120 advertisements during the year. Of these, 90 promoted shoes and 30 promoted clothing. Utilities expense of $64,000 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 $64,000 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.
Explanation / Answer
Allocation Percent of Allocation Base cost to be Allocated Utilities base allocated cost Department floor space occupied numerator Denominator % of total Advertising 1,120 1,120 14,000 8 64,000 5120 Administrative 1,400 1,400 14,000 10 64,000 6400 Shoes 7,140 7,140 14,000 51 64,000 32640 Clothing 4,340 4,340 14,000 31 64,000 19840 Totals 14,000 100 64000 Advertising Allocation Percent of Allocation Base cost to be Allocated base allocated cost Department numerator Denominator % of total Shoes 90 90 120 75 23,120 17340 Clothing 30 30 120 25 23,120 5780 Totals 120 100 23120 Administrative Allocation Percent of Allocation Base cost to be Allocated base allocated cost Department numerator Denominator % of total Shoes 273,000 273000 350000 78 31,400 24492 Clothing 77,000 77000 350000 22 31,400 6908 Totals 350,000 100 31400 MARATHON RUNNING SHOP Departmental expense Allocation Spreadsheet For the year ended december 31,2017 exp totals advertising administrative shoes Clothing Direct Expense 161,000 18,000 25,000 103,000 15,000 indirect utilities exp 64000 5120 6400 32640 19840 total dept expense 225,000 23,120 31,400 135,640 34,840 service dept expense advertising dept -23,120 17340 5780 administrative dept -31,400 24492 6908 total exp allocated 225,000 0 0 177,472 47,528