ENDS 221 Lecture : ENDS221 Tutorial Notes September.docx
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City Bank has several departments that occupy both floors of atwo-story building. The departmental accounting system has a singleaccount, Building Occupancy Cost, in its ledger. The types andamounts of occupancy costs recorded in this account for the currentperiod follow. |
Depreciation - Building $ 31,500
Interest - Buidling Mortgage 47,25
Taxes - Building & Land 14,000
Gas (Heating) Expense 4,375
Lighting Expense 5,250
Maintenance Expense 9,625
_____________________________
Total Occupancy Cost $112,00
The building has 7,000 square feet on each floor. In priorperiods, the accounting manager merely divided the $112,000occupancy cost by 14,000 square feet to find an average cost of $8per square foot and then charged each department a buildingoccupancy cost equal to this rate times the number of square feetthat it occupied. | ||||
Laura Diaz manages a first-floor department that occupies 900square feet, and Lauren Wright manages a second-floor departmentthat occupies 1,800 square feet of floor space. In discussing thedepartmental reports, the second-floor manager questions whetherusing the same rate per square foot for all departments makes sensebecause the first-floor space is more valuable. This manager alsoreferences a recent real estate study of average local rental costsfor similar space that shows first-floor space worth $40 per squarefoot and second-floor space worth $10 per square foot (excludingcosts for heating, lighting, and maintenance).
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