Question
It is common for strip mall owners to allocate to their tenants general overhead costs such as snow clearing, security, and parking lot maintenance in
It is common for strip mall owners to allocate to their tenants general overhead costs such as snow clearing, security, and parking lot maintenance in one of two ways. The first method involves allocating these costs on the basis of the square metres each tenant operates. The second method involves allocating these costs on the basis of the number of annual transactions made by each tenant. At Charleswood Square, there are three tenants. The 7-Eleven takes up 150 square metres, Tim Hortons takes up 235 square metres, and Quiznos takes up 110 square metres. Last year, 7-Eleven had 350,400 transactions, Tim Hortons had 657,000 transactions, and Quiznos had 197,100 transactions. Total overhead costs for Charleswood Square last year were $25,980. Determine which method of allocation each tenant would prefer and how much of a savings in percentage its preferred method would represent relative to the other allocation method.
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