A company rents a small building with 10,000 square feet of space for $100,000 per year. The rent is allocated tothe company's three departments on the basis of the value of the space occupied by each. Department 1occupies 1,500 square feet of ground-floor space, Department 2 occupies 3,500 square feet of ground-floorspace, and Department 3 occupies 5,000 square feet of second-floor space. If rent for comparable floor space inthe neighborhood averages $15.00 per sq. ft. for ground-floor space and $10 per sq. ft. for second-floor space,what annual rent expense should be charged to each department?Edit Format Table

Renting of property shall be comparable with the neighborhood rent cost. It help to manage the…

occupies space, and Department 3 occupies 5,000 square feet of second-floor space. If rent for comparable floor space in the neighborhood averages $15.00 per sq. ft. for ground-floor space and $10 per sq. ft. for second-floor space, what annual rent expense should be charged to each department?

occupies space, and Department 3 occupies 5,000 square feet of second-floor space. If rent for comparable floor space in the neighborhood averages $15.00 per sq. ft. for ground-floor space and $10 per sq. ft. for second-floor space, what annual rent expense should be charged to each department?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

A company rents a small building with 10,000 square feet of space for $100,000 per year. The rent is allocated to
the company's three departments on the basis of the value of the space occupied by each. Department 1
occupies 1,500 square feet of ground-floor space, Department 2 occupies 3,500 square feet of ground-floor
space, and Department 3 occupies 5,000 square feet of second-floor space. If rent for comparable floor space in
the neighborhood averages $15.00 per sq. ft. for ground-floor space and $10 per sq. ft. for second-floor space,
what annual rent expense should be charged to each department?
Edit Format Table

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