Marathon Running Shop has two service departments (advertising and administrativ
ID: 2485293 • 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.
The advertising department developed and distributed 220 advertisements during the year. Of these, 66 promoted shoes and 154 promoted clothing. The store sold $380,000 of merchandise during the year. Of this amount, $296,400 is from the shoes department, and $83,600 is from the clothing department. The utilities expense of $69,000 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 $69,000 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.
Department Direct Expenses Square Feet Advertising $ 10,000 560 Administrative 36,000 700 Shoes 105,000 2,590 Clothing 12,000 3,150Explanation / Answer
Utilities Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Numerator Denominator % of Total Advertising 560 560 7000 8% 69000 5520 Administrative 700 700 7000 10% 69000 6900 Shoes 2590 2590 7000 37% 69000 25530 Clothing 3150 3150 7000 45% 69000 31050 Totals 7000 0 69000 Advertising Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Numerator Denominator % of Total Shoes 66 66 220 30% 15520 4656 Clothing 154 154 220 70% 15520 10864 Totals 220 0 15520 Administrative Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Numerator Denominator % of Total Shoes 296400 296400 380000 78% 42900 33462 Clothing 83600 83600 380000 22% 42900 9438 Totals 380000 0 42900 MARATHON RUNNING SHOP Departmental Expense Allocation Spreadsheet For Year Ended December 31, 2015 Expense Totals Advertising Administrative Shoes Clothing Direct expense 163000 10000 36000 105000 12000 Indirect utilities expenses 69000 5520 6900 25530 31050 Total dept. exp. 232000 15520 42900 130530 43050 Service Dept. Expenses Advertising Dept. 0 -15520 4656 10864 Administrative Dept. 0 -42900 33462 9438 Total expenses allocated 232000 0 0 168648 63352