Concept explainers
Cost Allocation:
Sometime a cost is incurred for a whole firm and not for a particular department. In this case cost allocation is used. It is a way through which a particular cost is assigned to the respective department.
To compute: Allocation of rental expense to each department.
Explanation of Solution
Jewelry department:
Given,
Area occupied by this department is 1,440 square feet.
Total area of first floor is 4,800 square feet.
Total first floor rent is $84,500.
Formula to calculate rental expense,
Substitute, 1,440 square feet for area occupied by this department, 4,800 square feet for total area of first floor and $84,500 for Total first floor rent in the above equation.
Hence, rental expense of jewelry department is $25,350.
Working notes:
Calculation for first floor rent,
Cosmetic department:
Given,
Total first floor rent is $84,500.
Jewelry department rent is $25,350.
Formula to calculate rental expense,
Substitute, $84,500 for the first floor rent and $25,350 for jewelry department rent in the above equation.
Hence, cosmetics department rent is $59,150.
House wares department:
Given,
Area occupied by this department is 2,016 square feet.
Total area of second floor is 4,800 square feet.
Total second floor rent is $45,500.
Formula to calculate rental expense,
Substitute, 2,016 square feet for area occupied by this department, 4,800 square feet for total area of second floor and $45,500 for total second floor rent in the above equation.
Hence, rental expense of house wares department is $19,110.
Working notes:
Calculation for second floor rent,
Tools department:
Given,
Area occupied by this department is 960 square feet.
Total area of second floor is 4,800 square feet.
Total second floor rent is $45,500.
Formula to calculate rental expense,
Substitute, 960 square feet for area occupied by this department, 4,800 square feet for total area of second floor and $45,500 for total second floor rent in the above equation.
Hence, rental expense of tools department is $9,100.
Shoes department:
Given,
Area occupied by this department is 1,824 square feet.
Total area of second floor is 4,800 square feet.
Total second floor rent is $45,500.
Formula to calculate rental expense,
Substitute, 1,824 square feet for area occupied by this department, 4,800 square feet for total area of second floor and $45,500 for total second floor rent in the above equation.
Hence, rental expense of shoes department is $17,290.
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