How to Compute Amortization Expense for Improvements on Leased Office Space?

Question:

Phoenix Agency leases office space and incurs $105,600 to improve the leased office space. With 8 years remaining on the lease, how much should be recorded as amortization expense for the improvements in the first year?

Answer:

To compute the amount of amortization expense related to the improvements, we need to divide the total cost of improvements ($105,600) by the remaining lease term (8 years).

Amortization expense = Total cost of improvements / Remaining lease term

Amortization expense = $105,600 / 8 = $13,200

Therefore, the correct answer is (c) $13,200.

Amounts charged to Work in Process during production are recorded at standard costs for the number of units produced. These standard costs include direct materials, direct labor, and manufacturing overhead. The standard costs are predetermined based on historical data, industry standards, and management's expectations.

Recording costs at standard allows for analysis of variances between standard costs and actual costs, which can be used for performance evaluation and cost control. It helps in identifying areas for improvement to enhance efficiency and profitability.