Biden Department Store Has Four Departments: Men's, Women's, Children's, and Electronics

question 26

Essay

Biden Department Store has four departments: men's, women's, children's, and electronics. The following information is provided:
The company's accountant needs to allocate the store's annual rent of $160,000. $$\begin{array} { | l | l | l | l | l | } \hline & \text { Men's } & \text { Women's } & \text { Chaldren's } & \text { Electronics } \\\hline \text { Floor space } & 10,000 \text { sq. ft. } & 20,000 \text { sq. ft. } & 8,000 \text { sq. } \mathrm { ft } & 2,000 \text { sq. ft. } \\\hline \text { Sales } & \$ 35,000 & \$ 75,000 & \$ 20,000 & \$ 12,000 \\\hline\end{array}$$ Required:
1) Compute the allocation rate that should be used to allocate the rent cost to the four departments.2) Compute the amount of rent that should be allocated to each of the four departments.3) Currently, the managers are paid a bonus based on sales. As you can see from the above table, the women's department manager will receive the largest bonus. Do you believe this bonus plan is fair to all four department managers? Why or why not?

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Definitions:

GAAP

Generally Accepted Accounting Principles, a set of accounting standards and procedures used in the United States to govern financial reporting.

Financing Provided

Funds supplied to businesses or individuals for the purpose of investing, expansion, or operating expenses that are expected to be repaid in the future.

Retained Earnings

The segment of net profits that are not distributed as dividends, instead kept within the company for reinvestment in its main operations or for debt repayment.

Current Asset

A slightly different term for assets likely to be used or turned into cash within one fiscal year or operating cycle, emphasizing liquidity.