Question

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	$	27,000
Interest—Building mortgage		40,500
Taxes—Building and land		12,000
Gas (heating) expense		3,750
Lighting expense		4,500
Maintenance expense		8,250
Total occupancy cost	$	96,000

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.

Diane Linder manages a first-floor department that occupies 1,000 square feet, and Juan Chiro manages a second-floor department that occupies 1,900 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).

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.)

Answer 1

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Following costs are being allocated on each floor based on Relative Market Value (i.e. 30:20)
Depreciation	$        27,000
Interest	$        40,500
Tax	$        12,000
Total	$        79,500
		Allocation	Sq Feet	Per SQ Feet
		A	B	C=A/B
First Floor Allocation	79500/50*30	$                47,700	6000	$            7.95
Second Floor Allocation	79500/50*20	$                31,800	6000	$            5.30
	Per SQ Feet	Space Occupied	Total Overhead Allocatio
Diane Linder	$             7.95	1000	$                                     7,950
Juan Chiro	$             5.30	1900	$                                   10,070
Following costs are being allocated on each floor space i.e. 1:1
Heating	3750
Lighting	4500
Maintenance	8250
Total	$        16,500
Total Floor Space	12,000	Sq Feet
Per Sq Feet	$             1.38	per Sq Feet
	Per SQ Feet	Space Occupied	Total Overhead Allocatio
Diane Linder	$             1.38	1000	$                                     1,375
Juan Chiro	$             1.38	1900	$                                     2,613