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 $ 18,000 Interest—Building mortgage 27,000 Taxes—Building and land 9,000 Gas (heating) expense 3,000 Lighting expense 3,000 Maintenance expense 6,000 Total occupancy cost $ 66,000 The building has 4,000 square feet on each floor. In prior periods, the accounting manager merely divided the $66,000 occupancy cost by 8,000 square feet to find an average cost of $8.25 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 $30 per square foot and second-floor space worth $20 per square foot (excluding costs for heating, lighting, and maintenance). Problem 22-2A Part 2 2. Allocate the depreciation, interest, and taxes occupancy costs to the Linder and Chiro departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Linder and Chiro departments in proportion to the square feet occupied (ignoring floor space market values). (Round cost answers to 2 decimal places. Round your intermediate calculations to 2 decimal places.)
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.
| $ | 18,000 | ||
| Interest—Building mortgage | 27,000 | ||
| Taxes—Building and land | 9,000 | ||
| Gas (heating) expense | 3,000 | ||
| Lighting expense | 3,000 | ||
| Maintenance expense | 6,000 | ||
| Total occupancy cost | $ | 66,000 | |
The building has 4,000 square feet on each floor. In prior periods, the
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 $30 per square foot and second-floor space worth $20 per square foot (excluding costs for heating, lighting, and maintenance).
Problem 22-2A Part 2
2. Allocate the depreciation, interest, and taxes occupancy costs to the Linder and Chiro departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Linder and Chiro departments in proportion to the square feet occupied (ignoring floor space market values). (Round cost answers to 2 decimal places. Round your intermediate calculations to 2 decimal places.)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
