Question

Suppose square feet is used as the basis for allocating the common fixed expense of $200,000. How much would be allocated to the bar if the bar occupies 1,000 square feet and the restaurant 9,000 square feet? A. $20,000

B. $30,000
C. $40,000
D. $50,000

Answer 1

The bar would be allocated $20,000 of the common fixed expense based on its proportion of square footage relative to the total space.

Step-by-step explanation:

To allocate the common fixed expense of $200,000 based on square footage, the first step is determining the total square footage, which sums up to 10,000 square feet (1,000 sq ft for the bar + 9,000 sq ft for the restaurant). The allocation for the bar is then calculated by taking its individual square footage (1,000 sq ft) divided by the total square footage (10,000 sq ft), multiplied by the total common fixed expense ($200,000).

This yields an allocation of $20,000 for the bar. Therefore, based on the square footage method, $20,000 of the common fixed expense is attributed to the bar. This allocation approach ensures a proportional distribution of the fixed expense, reflecting the relative space occupied by each segment (bar and restaurant) within the total area of 10,000 square feet.