Vortex Company operates a retail store with two departments. Information about t

Question

Vortex Company operates a retail store with two departments. Information about those departments follows.

The company also incurred the following indirect costs.

Indirect costs are allocated as follows: salaries on the basis of sales; insurance and depreciation on the basis of square footage; and office expenses on the basis of number of employees. Additional information about the departments follows.

Required:
1. Determine the departmental contribution to overhead and the departmental net income for department A and Department B. (Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

Department A Department B Sales $ 825,600 $ 464,400 Cost of goods sold 465,000 301,860 Direct expenses Salaries 123,000 82,000 Insurance 12,000 10,100 Utilities 21,000 26,500 Depreciation 20,500 12,500 Maintenance 6,600 5,600

Explanation / Answer

first let us allocate the indirect costs to departments:

sales = 825,600 + 464,400 =>1,290,000

total square footage = 28,000 + 12,000 =>40,000

total employees = 77+33 =>100

the following is the calculation of departmental contribution to overhead and departmental net income:

cost total allocation to Department A allocation to Department B Salaries $34,000 (34,000*825,600 / 1,290,000)=>21,760 (34,000*464,400/1,290,000)=>12,240 insurance 7,600 (7600*28,000/40,000)=>5,320 (7,600*12,000/40,000)=>2,280 depreciation 15,400 (15,400*28,000/40,000)=>10,780 (15,400*12,000/40,000)=>4,620 office expenses 48,000 (48,000*77 / 110)=>33,600 (48,000*33/110=>14,400 total 105,000 71,460 33,540

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