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 2019.

Department	Direct Expenses				Square Feet				Sales
Advertising	$	15,000				1,080
Administrative		28,000				990
Shoes		123,000				3,330			$	166,400
Clothing		18,000				3,600				93,600

The advertising department developed and distributed 240 advertisements during the year. Of these, 72 promoted shoes and 168 promoted clothing. Utilities expense of $45,000 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 $45,000 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.

Utilities Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Numerator Denominator % of Total Advertising 0 Administrative 0 0 Shoes 0 0 Clothing 0 Totals 0 Advertising Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Numerator Denominator % of Total Shoes 0 Clothing 0 Totals 0 Administrative Allocation Base Percent of Allocation Base Cost to be Allocated Allocated Cost Department Numerator Denominator % of Total Shoes 0 Clothing 0 Totals 0 MARATHON RUNNING SHOP Departmental Expense Allocation Spreadsheet For Year Ended December 31, 2019 Expense Totals Advertising Administrative Shoes Clothing Direct expense Indirect utilities expenses 0 Total dept. exp. 0 0 0 0 0 Service Dept. Expenses Advertising Dept. 0 Administrative Dept. 0 Total expenses allocated $0 $0 $0 $0 $0

Answer 1

• [1]

Utilities	Allcocation base	Numerator	Denominator	% of total	Cost to be allocated	Allocated Cost
Department:	Square feet
Advertising	Square feet	1080	9000	12%	$45,000	$5,400
Administrative	Square feet	990	9000	11%	$45,000	$4,950
Shoes	Square feet	3330	9000	37%	$45,000	$16,650
Clothing	Square feet	3600	9000	40%	$45,000	$18,000
Totals		9000		100%		$45,000
Advertising	Allcocation base	Numerator	Denominator	% of total	Cost to be allocated	Allocated Cost
Department:	No. of ads
Shoes	No. of ads	72	240	30%	$20,400	$6,120
Clothing	No. of ads	168	240	70%	$20,400	$14,280
Totals		240		100%		$20,400
Administrative	Allcocation base	Numerator	Denominator	% of total	Cost to be allocated	Allocated Cost
Department:	Amount of sales
Shoes	Amount of sales	166400	260000	64%	$32,950	$21,088
Clothing	Amount of sales	93600	260000	36%	$32,950	$11,862
Totals		260000		100%		$32,950

• [2]

	Expense Totals	Advertising	Administrative	Shoes	Clothing
Direct Expenses	$184,000	$15,000	$28,000	$123,000	$18,000
Indirect Utilities expense	$45,000	$5,400	$4,950	$16,650	$18,000
Total Dept Expense	$229,000	$20,400	$32,950	$139,650	$36,000
Service Depart Expenses:
Advertising Dept	$0	($20,400)		$6,120	$14,280
Administrative dept	$0		($32,950)	$21,088	$11,862
Total Expense allocated	$229,000	$0	$0	$166,858	$62,142