Question

A retailer pays $130,000 rent each year for its two-story building. The space in this building is occupied by five departments as specified here.

Department	Square feet occupied
Jewelry	1,440 (First floor)
Cosmetics	3,360 (First floor)
Housewares	2,016 (Second floor)
Tools	960 (Second floor)
Shoes	1,824 (Second floor)

The company allocates 65% of total rent expense to the first floor and 35% to the second floor, and then allocates rent expense for each floor to the departments occupying that floor on the basis of space occupied. Determine the rent expense to be allocated to each department. (Round percents to the nearest one-tenth and dollar amounts to the nearest whole dollar.)

Short answer

Department	Square feet occupied	Allocated rent
Jewelry	1,440 (First floor)	$25,350
Cosmetics	3,360 (First floor)	$59,150
Housewares	2,016 (Second floor)	$19,110
Tools	960 (Second floor)	$9,100
Shoes	1,824 (Second floor)	$17,290

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Rent Expenses

Rent Expenses can be defined as the cost incurred against using space owned by any other person. Such expense is considered a fixed expense of the business entity.

Allocation of first floor rent

65% of total rent expenses will be allocated to the first floor. That is equal to $84,500.

Department	Space occupied	/	Total space	X	Rent expenses	=	Allocated rent
Jewelry	1,440	/	4,800	X	$84,500	=	$25,350
Cosmetics	3,360	/	4,800	X	$84,500	=	$59,150
Total	4,800						$84,500

Allocation of second floor rent

35% of total rent expenses will be allocated to the second floor. That is equal to $45,500.

Department	Space occupied	/	Total space	X	Rent expenses	=	Allocated rent
Housewares	2,016	/	4,800	X	$45,500	=	$19,110
Tools	960	/	4,800	X	$45,500	=	$9,100
Shoes	1,824	/	4,800	X	$45,500	=	$17,290
Total							$45,500