Depreciation-Building
Interest-Building mortgage
Taxes-Building and land
Gas (heating) expense
Lighting expense
Maintenance expense
Total occupancy cost
$ 31,500
47,250
14,000
4,375
5,250
9,625
$112,000
The building has 7,000 square feet on each floor. In prior periods, the accounting manager merely divided the $112,000
occupancy cost by 14,000 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 $10 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 is complete but not entirely correct.
Square
Footage
Rate
Total
$9,320
$
1,000
$9.33
Department
Linder's
Department
Chiro's
1,900
6.68
12,673
Department
