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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     840  
  Administrative   18,700     1,120  
  Shoes   101,700     7,280  
  Clothing   12,100     4,760  

  
 

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, $266,000 is from the shoes department, and $84,000 is from the clothing department. The utilities expense of $64,000 is an indirect expense to all departments.

  
 

Complete the departmental expense allocation spreadsheet for Marathon Running Shop.The spreadsheet should Assign (1) direct expenses to each of the four departments, (2) the $64,000 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.

 

Utilities Allocation Base Percent of Allocation Base Cost to be allocated Allocated Cost    
Department Floor space occupied Numerator Denominator % of Total    
Advertising 840 840 14000 6 $64,000.00 $3,840.00
Administrative 1120 1120 14000 8 64000 5120
Shoes 7280 7280 14000 52 64000 33280
Clothing 4760 4760 14000 34 64000 21760
Totals 14000     100  

$64,000.00

 
Advertising Allocation Base Percent of Allocation Base Cost to be allocated (See below) Allocated Cost
Department Number of ads Numerator Denominator % of Total    
Shoes 90 90 120 75    
Clothing 30 30 120 25    
Totals 120     100    

 

Administrative Allocation Base Percent of Allocation Base Cost to be allocated (See below) Allocated Cost
Department Sales Numerator Denominator % of Total    
Shoes $266,000.00 $266,000.00 $350,000.00 76    
Clothing 84000 84000 350000 24    
Totals $350,000.00     100    

 

MARATHON RUNNING SHOP  
Departmental Expense Allocation Spreadsheet  
For Year Ended December 31, 2013  
Administrative Expense Totals Advertising Administrative Shoes Clothing
Direct expense $149,500.00 $17,000.00 $18,700.00 $101,700.00 $12,100.00
Indirect utilities expenses 64000 3840 5120 33280 21760
Total dept. exp. 213500 20840 23820 134980 33860
Service Dept. Expenses          
Advertising Dept.   0     0
Administrative Dept.     0   0
Total expenses allocated $213,500.00 $20,840.00 $23,820.00 $134,980.00 $33,860.00
 
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