Ch 12) 6 Saved Help Save & Exit The following information applies to the questio

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Ch 12) 6 Saved Help Save & Exit The following information applies to the questions displayed below. National 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 Depreciation-Building Interest-Building mortgage Taxes-Building and land Gas (heating) expense Lighting expense Maintenance expense Total occupancy cost $18,000 27,000 8,000 2,500 3,000 5,500 $64,000 The building has 4,000 square feet on each floor. In prior periods, the accounting manager merely divided the $64,000 occupancy cost by 8,000 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. Diane Linder manages a first-floor department that occupies 1,000 square feet, and Juan Chiro 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).

Explanation / Answer

Department

Depreciation—Building

Department

Square
Footage Rate Total Linder’s Dept. 1,000 $11.98 $11,980.00 Chiro’s Dept. 1,800 4.03 $7,254.00

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