City Bank has several departments that occupy both floors of a two-story buildin
ID: 2558405 • Letter: C
Question
City 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.
The building has 6,000 square feet on each floor. In prior periods, the accounting manager merely divided the $96,000 occupancy cost by 12,000 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.
Laura Diaz manages a first-floor department that occupies 900 square feet, and Lauren Wright 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 $40 per square foot and second-floor space worth $10 per square foot (excluding costs for heating, lighting, and maintenance).
Allocate occupancy costs to the Diaz and Wright departments using the current allocation method. (Omit the "$" sign in your response.)
Allocate the depreciation, interest, and taxes occupancy costs to the Diaz and Wright departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Diaz and Wright departments in proportion to the square feet occupied (ignoring floor space market values). (Round your intermediate percentages of cost allocation to nearest whole percent. Round your cost per Sq. ft to 2 decimal places and round intermediate dollar amounts and final answers to the nearest whole number. Omit the "$" sign in your response.)
City 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.
Explanation / Answer
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1. Allocate occupancy costs to the Diaz and Wright departments using the current allocation method. A B A*B Department Floor Space Occupied Allocation Rate per Sq Feet Occupancy Cost Allocated Diaz's 900 8 7200 Wright's 1800 8 14400 2. Allocation as Suggested in Que Dep, Int and Tax 27000+40500+12000 79500 Heat, Ligh, Main 3750+4500+8250 16500 Dep, Int and Tax First Floor Second Floor Total Total Floor Space 6000 6000 Rental Cost 40 per Sq Foot 10 per Sq Foot Total Floor Cost 240000 60000 300000 Dep, Int and Tax 79500 Rate (Dep,int,tax/Floor cost) 0.265 Dep, Int and Tax Department Floor Space Occupied Floor Rent Relative Floor Rental Rate Allocation Diaz's 900 40 36000 0.265 9540 Wright's 1800 10 18000 0.265 4770 Heat, Ligh, Main 16500 Total Floor Space 12000 Rate per sq feet 1.38 A B A*B Department Floor Space Occupied Allocation Rate per Sq Feet Occupancy Cost Allocated Diaz's 900 1.38 1242 Wright's 1800 1.38 2484 Total Allocation Dep, Int and Tax Heat, Ligh, Main Total Diaz's 9540 1242 10782 Wright's 4770 2484 7254 Total 14310 3726 18036