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 Sales Department Advertising Administrative Shoes Clothing Direct Expenses $ 15,000 27.000 103,90 13,00 Square Feet 500 700 4,100 4,700 $124,000 186,000 The advertising department developed and distributed 190 advertisements during the year. Of these, 38 promoted shoes and 152 promoted clothing, Utilities expense of $74,000 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 $74,000 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. Cost to be Utilities Allocation Base Percent of Allocation Base located Cost Allocated Allocated Cost Numerator Denominator % of Tota Department Advertising Administrative

Answer 1

Solution :

Allocation of Utilities Expense
Department	Allocation Base	Percentage of allocation base			* Indirect Cost	Allocated Cost
		Numerator	Denominator	% of Total
Advertising	Floor Space Occupied	500	10000	5.00%	$74,000.00	$3,700.00
Administrative	Floor Space Occupied	700	10000	7.00%	$74,000.00	$5,180.00
Shoes	Floor Space Occupied	4100	10000	41.00%	$74,000.00	$30,340.00
Clothing	Floor Space Occupied	4700	10000	47.00%	$74,000.00	$34,780.00
Totals						$74,000.00
Allocation of Advertising Cost
Department	Allocation Base	Percentage of allocation base			* Indirect Cost	Allocated Cost
		Numerator	Denominator	% of Total
Shoes	Nos of ads placed	38	190	20.00%	$18,700.00	$3,740.00
Clothing	Nos of ads placed	152	190	80.00%	$18,700.00	$14,960.00
Totals						$18,700.00
Allocation of Administrative Cost
Department	Allocation Base	Percentage of allocation base			* Indirect Cost	Allocated Cost
		Numerator	Denominator	% of Total
Shoes	Sale Value	$124,000.00	$310,000.00	40.00%	$32,180.00	$12,872.00
Clothing	Sale Value	$186,000.00	$310,000.00	60.00%	$32,180.00	$19,308.00
Totals						$32,180.00

Marathon Running Shop
Departmental Expenses Allocation Spreadsheet
For the year ended december 31, 2017
Particulars	Expense Total	Advertising	Administrative	Shoes	Clothing
Direct Expenses	$158,000.00	$15,000.00	$27,000.00	$103,000.00	$13,000.00
Indirect utilities expenses	$74,000.00	$3,700.00	$5,180.00	$30,340.00	$34,780.00
Total Dept. Expenses	$232,000.00	$18,700.00	$32,180.00	$133,340.00	$47,780.00
Service Dept Expenses:
Advertising Department	$0.00	-$18,700.00		$3,740.00	$14,960.00
Adminstrative Department	$0.00		-$32,180.00	$12,872.00	$19,308.00
Total expenses allocated	$232,000.00	$0.00	$0.00	$149,952.00	$82,048.00