Marathon Running Shop has two service departments (advertising and administratio
ID: 2487408 • Letter: M
Question
Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space.
The advertising department developed and distributed 120 advertisements during the year. Of these, 90 promoted shoes and 30 promoted clothing. The store sold $350,000 of merchandise during the year. Of this amount, $273,000 is from the shoes department, and $77,000 is from the clothing department. The 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.
Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space.
Explanation / Answer
Utilities floor space Department numer Denomin % of total Cost to be Allocated Advertising 1,120 1,120 14,000 8 64,000 5120 Administ 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 64000 advertising Depatment ads no num den % cost Allocated shoes 90 90 120 75 23,120 17340 Clothing 30 30 120 25 23,120 5780 totals 120 23120 Adminis Deptt sales num denomina % cost Allocated shoes 273,000 273,000 350000 78 31,400 24492 clothing 77,000 77,000 350,000 22 31,400 6908 totals 350,000 31400 Depatement expense allocation spreadsheet total adver adm shoe clothing direct exp 161,000 18,000 25,000 103,000 15,000 utility 64,000 5,120 6,400 32,640 19,840 total dept 225,000 23,120 31,400 135,640 34,840 service dept advertising -23,120 17,340 5,780 admis -31,400 24,492 6,908 total allo 225,000 0 0 177,472 47,528