Please explain the answers, much thanks! National Bank has several departments t
ID: 2449693 • Letter: P
Question
Please explain the answers, much thanks!
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 Total occupancy cost $64,000 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 1,800 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 $30 per square foot and second-floor space worth $10 per square foot (excluding costs for heating, lighting, and maintenance).Explanation / Answer
Q1 Dept. Square Footage Rate/Sq.foot($) Total L's Dept 1000 6.63 6630 C's Dept 1800 6.63 11934 18564 Total Cost except Heating ,lighting,Maintenance 64000-11000 Q2 Market value ratio's of Floor Space =30:10 or 3:1 Total of 53000 Depriciation 18000 Interest 27000 Tax 8000 Cost Allocation of 53000 in the ratio 3:1 L's Dept 39750 C's Dept 13250