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Complete a 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.

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Anthougoidn

Question Completion:

Marathon Running Shop has two service departments (advertising and administrative) and two operating departments (shoes and clothing). The table that follows shows the direct expenses incurred and square footage occupied by all four departments, as well as total sales for the two operating departments for the year 2017

                            Direct Expenses    Square Feet    Sales

Department

Advertising              $ 18,000                   1,120

Administrative           25,000                  1,400

Shoes                       103,000                  7,140          $273,000

Clothing                      15,000                4,340               77,000

The advertising department developed and distributed 120 advertisements during the year. Of these, 90 promoted shoes and 30 promoted clothing. Utilities expense of $64,000 is an indirect expense to all departments.

Answer:

Marathon Running Shop

Allocation of service departments' costs to the operating departments:

                         Service Departments      Operating Departments     Total

                     Advertising Administrative   Shoes          Clothing

Departmental   $18,000        $25,000      $103,000      $15,000   $161,000

Utilities                  5,120             6,400         32,640         19,840      64,000

After Utilities      23,120            31,400        135,640        34,840  $225,000  

Advertising       -23,120                                  17,340          5,780    0

Administrative                         -31,400         24,492          6,908    0

Total allocated costs                                 $177,472       $47,528 $225,000

Explanation:

a) Data and Calculations:

                            Direct Expenses    Square Feet    Sales

Department

Advertising              $ 18,000                  1,120

Administrative           25,000                 1,400

Shoes                       103,000                 7,140           $273,000

Clothing                     15,000                 4,340               77,000

Total                       $161,000               14,000          $350,000

Allocation of Utilities Expense of $64,000

Rate

Advertising        (1,120/14,000 * $64,000) =     $5,120

Administrative   (1,400/14,000 * $64,000) =   $6,400

Shoes                 (7,140/14,000 * $64,000) = $32,640          

Clothing             (4,340/14,000 * $64,000) = $19,840

Advertising       $ 18,000 + $5,120 = $23,120

Administrative    25,000 + $6,400  = $31,400

Shoes                103,000 + $32,640 = $135,640        

Clothing              15,000 + $19,840 = $34,840

Advertising expenses consumed by:

Shoes     90/120 * $23,120 = $17,340

Clothing 30/120 * $23,120 = $5,780

Administrative expenses consumed by:

Shoes $273,000/$350,000 * $31,400 = $24,492

Clothing $77,000/$350,000 * $31,400 = $6,908

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