Question

Bank's Department Store has three departments: Men's, Women's, and Children's. The store incurred $50,000 of store rental costs during the current year. The departments identified the following cost drivers:Men's-Labor dollars $530,000-Number of employees 10-Square footage 3,000-Number of sales transactions 300,000Women's-Labor dollars $775,000-Number of employees 20-Square footage 8,000-Number of sales transactions 900,000Children's -Labor dollars $240,000-Number of employees 4-Square footage 1,000-Number of sales transactions 90,000Using the most appropriate cost driver, how much rental cost should be allocated to the Women's department?

Answer 1

The $33,335 rental cost should be allocated to the Women's department

Step-by-step explanation:

In this question, the rental cost should be allocated in the square foot. Because rent is charged according to the square foot.

So, the calculation is shown below:

= (Store Rental cost) × (women square footage ÷ total number of square footage in a year)

where,

Store rental cost is $50,000

Women square footage is 8,000

And, the total square footage equals to

= Men square footage + women square footage + children square footage

= 3,000 + 8,000 + 1,000

= 12,000

Now put these values to the above formula

So, the answer would be equal to

= ($50,000) × (8,000 ÷ 12,000)

= $50,000 × 0.6667

= $33,335

Hence, the $33,335 rental cost should be allocated to the Women's department