Marathon Running Shop has two service departments (advertising and administrativ
ID: 2511047 • 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 Direct Expenses Square Feet Sales Department Advertising Administrative Shoes Clothing $ 18,000 30,000 102,000 14,000 400 400 1,600 2,600 $150,000 100,000 The advertising department developed and distributed 120 advertisements during the year. Of these, 36 promoted shoes and 84 promoted clothing. Utilities expense of $66,000 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 $66,000 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 salesExplanation / Answer
Utilities Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Floor Space Numerator Denominator % of Total Advertising 400 400 5000 8% 66000 5280 Administrative 400 400 5000 8% 66000 5280 Shoes 1600 1600 5000 32% 66000 21120 Clothing 2600 2600 5000 52% 66000 34320 Totals 5000 66000 Advertising Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Number of Ads Numerator Denominator % of Total Shoes 36 36 120 30% 23280 6984 Clothing 84 84 120 70% 23280 16296 Totals 120 23280 Administrative Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Amount of sales Numerator Denominator % of Total Shoes 150000 150000 250000 60% 35280 21168 Clothing 100000 100000 250000 40% 35280 14112 Totals 250000 35280 MARATHON RUNNING SHOP Departmental Expense Allocation Spreadsheet For Year Ended December 31, 2017 Expense Totals Advertising Administrative Shoes Clothing Direct expense 164000 18000 30000 102000 14000 Indirect utilities expenses 66000 5280 5280 21120 34320 Total dept. exp. 230000 23280 35280 123120 48320 Service Dept. Expenses Advertising Dept. 23280 -23280 0 6984 16296 Administrative Dept. 35280 0 -35280 21168 14112 Total expenses allocated 58560 -23280 -35280 28152 30408