Question

Exercise 22-6 Departmental expense allocation spreadsheet LO P2

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	$	19,000				1,350
Administrative		22,000				1,350
Shoes		93,000				4,800			$	204,800
Clothing		12,000				7,500				115,200

  
The advertising department developed and distributed 230 advertisements during the year. Of these, 69 promoted shoes and 161 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.
  

Answer 1

Expenses Allocation Sheet is as follows:

	Advertising	Administrative	Shoes	Clothing
Direct Expenses	19,000	22,000	93,000	12,000
Utilities Expense based on floor space	45,000*1,350/15,000 = 4,050	4,050	14,400	22,500
Advertising expense	(23,050)		6,915	16,135
Admin Expense		(26,050)	16,672	9,378
Total	-	-	130,987	60,013