Assume that Central University allocates the total annual building cost of $2,000,000 in the following manner:a. All vacant office space is absorbed by the university and is not allocated to the departments.b. All occupied office space costs are allocated on the basis of actual square footage used by each department.c. All common area costs are allocated on the basis of a department’s practical capacity. Calculate the cost allocated to each department in 2018 under this plan. Do you think the allocation method used here is appropriate? Explain. Fixed-cost allocation. Central University completed construction of its newest administrativebuilding at the end of 2017. The University's first employees moved into the building on January 1, 2018. Thebuilding consists of office space, common meeting rooms (including a conference center), a cafeteria, andeven a workout room for its exercise enthusiasts. The total 2018 building space of 250,000 square feet wasutilized as follows:Usage of Space% of Total Building Space52%Office space (occupied)Vacant office spaceCommon area and meeting space8%17%Workout room8%Cafeteria15%The new building cost the university $40 million and was depreciated using the straight-line method over20 years with zero residual value so $2,000,000 per year. At the end of 2018 three departments occupied thebuilding: executive offices of the president, accounting, and human resources. Each department's usage ofits assigned space was as follows:Practical CapacityOffice Space (sq. ft.)Actual OfficePlanned OfficeDepartmentSpace Used (sq. ft.)Space (sq. ft.)Executive29,90027,50036,000Accounting54,60050,00064,500Human resources45,50047,50049,500

a. Compute the allocation of total annual building cost of $2,000,000 when the vacant office space…

Answered: Fixed-cost allocation. Central…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Assume that Central University allocates the total annual building cost of $2,000,000 in the following manner:

a. All vacant office space is absorbed by the university and is not allocated to the departments.

b. All occupied office space costs are allocated on the basis of actual square footage used by each department.

c. All common area costs are allocated on the basis of a department’s practical capacity. Calculate the cost allocated to each department in 2018 under this plan. Do you think the allocation method used here is appropriate? Explain.

Fixed-cost allocation. Central University completed construction of its newest administrative
building at the end of 2017. The University's first employees moved into the building on January 1, 2018. The
building consists of office space, common meeting rooms (including a conference center), a cafeteria, and
even a workout room for its exercise enthusiasts. The total 2018 building space of 250,000 square feet was
utilized as follows:
Usage of Space
% of Total Building Space
52%
Office space (occupied)
Vacant office space
Common area and meeting space
8%
17%
Workout room
8%
Cafeteria
15%
The new building cost the university $40 million and was depreciated using the straight-line method over
20 years with zero residual value so $2,000,000 per year. At the end of 2018 three departments occupied the
building: executive offices of the president, accounting, and human resources. Each department's usage of
its assigned space was as follows:
Practical Capacity
Office Space (sq. ft.)
Actual Office
Planned Office
Department
Space Used (sq. ft.)
Space (sq. ft.)
Executive
29,900
27,500
36,000
Accounting
54,600
50,000
64,500
Human resources
45,500
47,500
49,500

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions