In a two-storied building, both the floors are occupied by State Bank's various departments. Building Occupancy Cost is the only account reflecting in the accounts of the bank under departmental accounting system. The several types of occupancy costs recorded in this account for the current period is as follows.
The building has 5,000 square feet on each floor. Earlier, an average cost of $8 per square foot was calculated by divided the $80,000 occupancy cost by 10,000 square feet and then charged each department a building occupancy cost equal to this rate times the number of square feet that it occupied. John manages a first-floor department that occupies 1,100 square feet, and Ronnie manages a second-floor department that occupies 1,700 square feet of floor space. In managerial discussions, the second-floor manager questions whether using the same rate per square foot for all departments makes sense because the first-floor space is more valuable. Ronnie also made a reference to a recent real estate study of average local rental costs for similar space that shows first-floor space worth $40 per square foot and second-floor space worth $10 per square foot (excluding costs for heating, lighting, and maintenance).
In a two-storied building, both the floors are occupied by State Bank's various departments. Building Occupancy Cost is the... View the full answer