Question

QS 22-18C Joint cost allocation LO C3 A company purchases a 10,080-square-foot commercial building for $420,000 and spends an additional $72,000 to divide the space into two separate rental units and prepare it for rent. Unit A, which has the desirable location on the corner and contains 2,880 square feet, will be rented for $1.50 per square foot. Unit B contains 7,200 square feet and will be rented for $0.90 per square foot. How much of the joint cost should be assigned to Unit B using the value basis of allocation

Answer 1

$295,200

Step-by-step explanation:

The computation of the joint cost that should be assigned to unit B is given below

But before that we have to determine the total and weightage

So, the total is

= 2,880 × $1.50 + 7,200 × $0.90

= $4,320 + $6,480

= $10,800

Now the weightage is

= $6,480 ÷ $10,800

= 60%

And, the joint cost is

= $420,000 + $72,000

= $492,000

So, the joint cost assigned to unit B is

= $492,000 × 60%

= $295,200