Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

-If total rent expense is $80,000 and it is allocated on the basis of square footage, the amount allocated to the New Department should be
A) $13,333.
B) $20,000.
C) $56,000.
D) $60,000.

Question

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:
 
-If total rent expense is $80,000 and it is allocated on the basis of square footage, the amount allocated to the New Department should be
A) $13,333. 
B) $20,000. 
C) $56,000. 
D) $60,000.

Quizplus · Accepted Answer

Since the New and Old Departments have 20,000 and 10,000 square feet respectively, the New Department should be allocated 2/3 of the rent expense and the Old Department should be allocated 1/3. Therefore, the amount allocated to the New Department should be (2/3) x $80,000 = $53,333. However, since the question is asking for the amount allocated to the New Department only, the answer would be $53,333 ÷ 3 = $20,000.

Stohr Company Has Two Departments, New and Old