Problem 21 1A Part 2
2.
Allocate the depreciation, interest, and taxes occupancy costs to the Diaz and Wright departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Diaz and Wright departments in proportion to the square feet occupied (ignoring floor space market values). (Round your cost per Sq. ft rate to 2 decimal places and final answers to the nearest whole number. Omit the “$” sign in your response.)
Department Total
Diaz’s Dept. $
Wright’s Dept. $
Depreciation”Building $ 18,000
Interest”Building mortgage 27,000
Taxes”Building and land 8,000
Gas (heating) expense 2,500
Lighting expense 3,000
Maintenance expense 5,500
Total occupancy cost $ 64,000
The building has 4,000 square feet on each floor. In prior periods, the accounting manager merely divided the $64,000 occupancy cost by 8,000 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.
Laura Diaz manages a first floor department that occupies 1,000 square feet, and Lauren Wright manages a second floor department that occupies 1,800 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).