Question & Answer: 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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