Marathon Running Shop has two service departments (advertising and administrativ
ID: 2476481 • Letter: M
Question
Marathon Running Shop has two service departments (advertising and administrative) and two operating departments (shoes and clothing). During 2015, the departments had the following direct expenses and occupied the following amount of floor space. Department Direct Expenses Square Feet Advertising $ 10,000 770 Administrative 32,000 840 Shoes 134,000 2,310 Clothing 19,000 3,080 The advertising department developed and distributed 240 advertisements during the year. Of these, 48 promoted shoes and 192 promoted clothing. The store sold $240,000 of merchandise during the year. Of this amount, $192,000 is from the shoes department, and $48,000 is from the clothing department. The utilities expense of $57,000 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 $57,000 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
Utilities Allocation Base Percent of allocation base Cost to be allocated Allocated Cost Department Floor space occupied Numerator Denominator % of total Advertising 770 770 7000 11.00% $ 57,000.00 $ 6,270.00 Administrative 840 840 7000 12.00% $ 57,000.00 $ 6,840.00 Shoes 2310 2310 7000 33.00% $ 57,000.00 $ 18,810.00 Clothing 3080 3080 7000 44.00% $ 57,000.00 $ 25,080.00 Totals 7000 100.00% $ 57,000.00 Advertising Allocation Base Percent of allocation base Cost to be allocated Allocated Cost Department No. of ads Numerator Denominator % of total Shoes 48 48 240 20.00% $ 16,270.00 $ 3,254.00 Clothing 192 192 240 80.00% $ 16,270.00 $ 13,016.00 Totals 240 100.00% $ 16,270.00 Administrative Allocation Base Percent of allocation base Cost to be allocated Allocated Cost Department Sales Numerator Denominator % of total Shoes $ 1,92,000.00 $ 1,92,000.00 $ 2,40,000.00 80.00% $ 38,840.00 $ 31,072.00 Clothing $ 48,000.00 $ 48,000.00 $ 2,40,000.00 20.00% $ 38,840.00 $ 7,768.00 Totals $ 2,40,000.00 100.00% $ 38,840.00 MARATHON RUNNING SHOP Departmental Expense Allocation Spreadsheet For Year Ended Decemmber 31,2015 Expenses Total Advertising Administrative Shoes Clothing Direct Expense $ 1,95,000.00 $ 10,000.00 $ 32,000.00 $ 1,34,000.00 $ 19,000.00 Indirect Utilities Expenses $ 57,000.00 $ 6,270.00 $ 6,840.00 $ 18,810.00 $ 25,080.00 Total dept. Expenses $ 2,52,000.00 $ 16,270.00 $ 38,840.00 $ 1,52,810.00 $ 44,080.00 Service Department Expenses Advertising $ -16,270.00 $ 3,254.00 $ 13,016.00 Administrative $ -38,840.00 $ 31,072.00 $ 7,768.00 Total Expenses allocated $ 2,52,000.00 $ - $ - $ 1,87,136.00 $ 64,864.00