Reference no: EM13599481
Fixed cost allocation.State University completed construction of its newest administrative building at the end of 2011. The University's first employees moved into the building on January 1, 2012. The building consists of office space, common meeting rooms (including a conference center), a cafeteria and even a workoutroom for its exercise enthusiasts. The total 2012 building space of 125,000 square feet was utilized as follows:
- Usage of Space % of Total Building Space
- Office Space Occupied 52%
- Vacant Office Space 8%
- Common Meeting Space25%
- Workout Room 5%
- Cafeteria 10%
The new building cost the university $30 million and was depreciated using the straight-line method over20years. At the end of 2012 three departments occupied the building: executive offices of the president, accounting, and human resources. Each department's usage of its assigned space was as follows:
DepartmentActual Usage Planned Usage Practical Usage Executive 16,250 12,400 18,000
Accounting 26,00026,04033,000
Human Management22,75023,56024,000
1.How much of the total building cost will be allocated in 2012 to each of the departments, if allocated onthe basis of the following?
a.Actual usage
b.Planned usage
c.Practical capacity
2.Assume that State University allocates the total annual building cost in the following manner:
a.All vacant office space is absorbed by the university and is not allocated to the departments.
b.All occupied office space costs are allocated on the basis of actual square footage used.
c.All common costs are allocated on the basis of a department's practical capacity.
Calculate the cost allocated to each department in 2012 under this plan. Do you think the allocation method used here is appropriate? Explain.