connect 24 -5-6
National Bank has several departments that occupy both floors of a two-story building. The departmental accounting system has a single account, Building Occupancy Cost, in its ledger. The types and amounts of occupancy costs recorded in this account for the current period follow.
| Depreciation—Building | $ | 27,000 |
| Interest—Building mortgage | 40,500 | |
| Taxes—Building and land | 12,000 | |
| Gas (heating) expense | 3,750 | |
| Lighting expense | 4,500 | |
| Maintenance expense | 8,250 | |
| Total occupancy cost | $ | 96,000 |
The building has 6,000 square feet on each floor. In prior periods, the accounting manager merely divided the $96,000 occupancy cost by 12,000 square feet to find an average cost of $8 per square foot and then charged each department a building occupancy cost equal to this rate times the number of square feet that it occupied. |
Diane Linder manages a first-floor department that occupies 1,000 square feet, and Juan Chiro manages a second-floor department that occupies 1,800 square feet of floor space. In discussing the departmental reports, the second-floor manager questions whether using the same rate per square foot for all departments makes sense because the first-floor space is more valuable. This manager also references a recent real estate study of average local rental costs for similar space that shows first-floor space worth $30 per square foot and second-floor space worth $20 per square foot (excluding costs for heating, lighting, and maintenance). |
10 years ago
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