Question & Answer: Marathon Running Shop has two service departments (advertising and administration) and two operating departmen…..

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.

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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)

Question & Answer: Marathon Running Shop has two service departments (advertising and administration) and two operating departmen..... 1

Utilities Allocation Base Percent of Allocation Base Cost to be allocated Allocated Cost Department Floor space occupied Numerator Denominator % of Total Advertising Administrative Shoes Clothing Totals Advertising Department Allocation Base Cost to be allocated Allocated Cost Number of ads Numerator Denominator | % of Total Shoes Clothing Totals Administrative Department Allocation Base Percent of Allocation Base Cost to be allocated Allocated Cost Sales Numerator Denominator | % of Total Shoes Clothing Totals MARATHON RUNNING SHOP Departmental Expense Allocation Spreadsheet For Year Ended December 31, 2013 Expense Totals Direct expense Indirect utilities expenses Total dept. exp Service Dept. Expenses

Expert Answer

Marathon Running Shop

Statement showing assigning of direct and indirect expenses to each of the four departments:

Allocation of utilities -indirect expenses:

Utilities	Allocation Base	Percent of allocation base			Cost to be allocated	Allocated Cost
Department	Floor space occupied	Numerator	Denomiator	% of total
Advertising	1,280 Sq. Ft.	1280 Sq. Ft.	16,000	8	$63,000	$5,040
Administrative	1,600 Sq. Ft.	1,600	16,000	10	$63,000	$6,300
Shoes	8320 Sq. Ft.	8,320	16,000	52	$63,000	$32,760
Clothing	4,800 Sq. Ft.	4,800	16,000	30	$63,000	$18,900
Totals	16,000 Sq. Ft			100		$63,000
Advertising	Allocation Base	Percent of allocation base			Cost to be allocated	Allocated Cost
Department	Number of ads	Numerator	Denominator	% of total
Shoes	90	90	120	75	17,000	$12,750
Clothing	30	30	120	25	$17,000	$4,250
Totals	120			100		$17,000

Aministrative	Allocation Base	Percent of allocation base			Cost to be allocated	Allocated Cost
Department	Sales	Numerator	Denominator	% of total
Shoes	$262,500	262,500	350,000	75	$18,600	$13,950
Clothing	$87,500	87,500	350,000	25	$18,600	$4,650
Totals	$350,000			100		$18,600

		MARATHON RUNNING SHOP
	Departmental Expense Allocation Spreadsheet
		for the year ended December 31, 2013
	Expense Totals	Advertising	Administrative	Shoes	Clothing
Direct Expense	$148,900	$17,000	$18,600	$101,600	$11,700
Indirect Utilities Expense	$63,000	$5,040	$6,300	$32,760	$18,900
Total dept. exp	$211,900	$22,040	$24,900	$134,360	$30,600
Service Dept. Expenses
		MARATHON RUNNING SHOP
	Departmental Expense Allocation Spreadsheet
		for the year ended December 31, 2013
	Expense Totals	Advertising	Administrative	Shoes	Clothing
Direct Expense	$148,900	$17,000	$18,600	$101,600	$11,700
Indirect Utilities Expense	$63,000	$5,040	$6,300	$32,760	$18,900
Total dept. exp
Service Dept. Expenses
Advertising Dept.		($22,040)		$16,530	$5,510
Administrative Dept.			($24,900)	$18,675	$6,225
Total expenses allocated	$211,900			$169,565	$42,335

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