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 2017.

Department	Direct Expenses				Square Feet				Sales
Advertising	$	18,000				1,120
Administrative		25,000				1,400
Shoes		103,000				7,140			$	273,000
Clothing		15,000				4,340				77,000
The advertising department developed and distributed 120 advertisements during the year. Of these, 90 promoted shoes and 30 promoted clothing. Utilities expense of $64,000 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 $64,000 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, 2017 Expense Totals Advertising Administrative Shoes Clothing Direct expense $0 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

		Allocation		Percent of Allocation Base			cost to be	Allocated
Utilities		base					allocated	cost
Department		floor space occupied		numerator	Denominator	% of total
Advertising		1,120		1,120	14,000	8	64,000	5120
Administrative		1,400		1,400	14,000	10	64,000	6400
Shoes		7,140		7,140	14,000	51	64,000	32640
Clothing		4,340		4,340	14,000	31	64,000	19840
Totals		14,000				100		64000
Advertising		Allocation		Percent of Allocation Base			cost to be	Allocated
		base					allocated	cost
Department				numerator	Denominator	% of total
Shoes		90		90	120	75	23,120	17340
Clothing		30		30	120	25	23,120	5780
Totals		120				100		23120
Administrative		Allocation		Percent of Allocation Base			cost to be	Allocated
		base					allocated	cost
Department				numerator	Denominator	% of total
Shoes		273,000		273000	350000	78	31,400	24492
Clothing		77,000		77000	350000	22	31,400	6908
Totals		350,000				100		31400
		MARATHON RUNNING SHOP
		Departmental expense Allocation Spreadsheet
		For the year ended december 31,2017
		exp totals		advertising	administrative	shoes	Clothing
Direct Expense		161,000		18,000	25,000	103,000	15,000
indirect utilities exp		64000		5120	6400	32640	19840
total dept expense		225,000		23,120	31,400	135,640	34,840
service dept expense
advertising dept				-23,120		17340	5780
administrative dept					-31,400	24492	6908
total exp allocated		225,000		0	0	177,472	47,528