Answered Essay: rvice departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the

Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space.

 

  Department Direct Expenses Square Feet
  Advertising $ 17,000 1,280
  Administrative 18,600 1,600
  Shoes 101,600 8,320
  Clothing 11,700 4,800

 

The advertising department developed and distributed 120 advertisements during the year. Of these, 90 promoted shoes and 30 promoted clothing. The store sold $350,000 of merchandise during the year. Of this amount, $262,500 is from the shoes department, and $87,500 is from the clothing department. The utilities expense of $63,000 is an indirect expense to all departments.

 

Complete the departmental expense allocation spreadsheet for Marathon Running Shop. Assign (1) direct expenses to each of the four departments, (2) the $63,000 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.

Expert Answer

 

space allocated Utilities allocated on the basis of space occupied total advertized posted 120 total sales 350000
1280 5040 shoe department 90 shoe department 262500
1600 6300 clothing 30 clothing 87500
8320 32760 allocation of advertising department expenses on the basis of advertisement post allocation of administration expenses on the basis of sales made
4800 18900 shoe department (90/120)*22040 16530 shoe department (262500/350000)*24900 18675
16000 clothing (30/120)*22040 5510 clothing (87500/350000)*24900 6225
expense Allocation Sheet
expenses total advertising administrative expenses shoes clothing
direct expenses 148900 17000 18600 101600 11700
utilities expenses = space occupied/total space area)* total utilize expenses 63000 5040 6300 32760 18900
total departmental expenses 211900 22040 24900 134360 30600
service departmental expenses
advertising expenses -22040 16530 5510
administrative expenses -24900 18675 6225
total expenses allocated 211900 0 0 169565 42335
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