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16 February, 07:20

Bank's Department Store has three departments: Men's, Women's, and Children's. The store incurred $50,000 of store rental costs during the current year. The departments identified the following cost drivers:Men's-Labor dollars $530,000-Number of employees 10-Square footage 3,000-Number of sales transactions 300,000Women's-Labor dollars $775,000-Number of employees 20-Square footage 8,000-Number of sales transactions 900,000Children's - Labor dollars $240,000-Number of employees 4-Square footage 1,000-Number of sales transactions 90,000Using the most appropriate cost driver, how much rental cost should be allocated to the Women's department?

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  1. 16 February, 09:28
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    The $33,335 rental cost should be allocated to the Women's department

    Explanation:

    In this question, the rental cost should be allocated in the square foot. Because rent is charged according to the square foot.

    So, the calculation is shown below:

    = (Store Rental cost) * (women square footage : total number of square footage in a year)

    where,

    Store rental cost is $50,000

    Women square footage is 8,000

    And, the total square footage equals to

    = Men square footage + women square footage + children square footage

    = 3,000 + 8,000 + 1,000

    = 12,000

    Now put these values to the above formula

    So, the answer would be equal to

    = ($50,000) * (8,000 : 12,000)

    = $50,000 * 0.6667

    = $33,335

    Hence, the $33,335 rental cost should be allocated to the Women's department
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