Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space.

Exercise 24-4 Departmental expense allocation spreadsheet LO P2

Marathon Running Shop has two service departments (advertising and administration) and two operating departments (shoes and clothing). During 2013, the departments had the following direct expenses and occupied the following amount of floor space.

 

Department	Direct Expenses			Square Feet
Advertising	$	18,000			1,120
Administrative		25,000			1,400
Shoes		103,000			7,140
Clothing		15,000			4,340

 

The advertising department developed and distributed 120 advertisements during the year. Of these, 90 promoted shoes and 30 promoted clothing. The store sold $350,000 of merchandise during the year. Of this amount, $273,000 is from the shoes department, and $77,000 is from the clothing department. The utilities expense of $64,000 is an indirect expense to all departments.

 

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. Explanation: Supporting expense allocation calculations Utilities expense: $64,000   Square Feet % of Total Cost   Advertising   1,120     8   %   $ 5,120       Administrative   1,400     10         6,400       Shoes   7,140     51         32,640       Clothing   4,340     31         19,840                  Total   14,000     100.0   %   $ 64,000                  Advertising expense: $23,120   Ads Placed % of Total Cost   Shoes   90     75   %   $ 17,340       Clothing   30     25         5,780                  Total   120     100   %   $ 23,120               Administrative expense: $31,400   Sales % of Total Cost   Shoes $ 273,000     78   %   $ 24,492       Clothing   77,000     22         6,908                Total $ 350,000     100   %   $ 31,400