Alternative Allocation Bases: Affiliated Retailers operates a department store in Enola, Pennsylvania. The store has 120,000 square feet. Each department in the store is charged with a share of the cost of the building. The following information is available concerning two of the departments in the store:

Other departments use the other 80.000 square feet. The total building occupancy costs are $600,000 per year.

a. If area occupied is the basis for allocation of building occupancy costs, what is the operating profit or loss for each of these two departments?

b. Would you change your answer to

(a) if you learned that the fashion clothing department is located in an upstairs back corner of the store? Discuss why you would (or would not) change your answer

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Sales revenues Cost of goods sold Sales commissions, salaries, other direct expenses Allocated administrative expenses Operating profit before building occupancy costs Area occupied Department Fashion Clothing Furniture $700,000 $800,000 370,000 380,000 210,000 240,000 60,000 65,000 $ 60,000 10,000 sq. ft. $115,000 30,000 sq. ft.