Problem 22-4A Departmental contribution to income LO P3 Vortex Company operates

Question

Problem 22-4A Departmental contribution to income LO P3 Vortex Company operates a retail store with two departments. Information about those departments follows. Department A Department B Sales $ 800,000 $ 450,000 Cost of goods sold 497,000 291,000 Direct expenses Salaries 125,000 88,000 Insurance 20,000 10,000 Utilities 24,000 14,000 Depreciation 21,000 12,000 Maintenance 7,000 5,000 The company also incurred the following indirect costs. Salaries $36,000 Insurance 6,000 Depreciation 15,000 Office expenses 50,000 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. Department Square footage Number of employees A 28,000 75 B 12,000 50 Required: 1. Determine the departmental contribution to overhead and the departmental net income for department A and Department B.

Explanation / Answer

Notes: Ratios for allocating of indirect costs:

Income Statement Department A ($) Department B ($) Sales 800000 450000 Cost of goods sold 497000 291000 Gross Profit 303000 159000 Direct Expense Salaries 125000 88000 Insurance 20000 10000 Utilities 24000 14000 Depreciation 21000 12000 Maintenance 7000 5000 Total direct expenses 197000 129000 Contribution to the overhead costs 106000 30000 Indirect expenses salaries (on the basis of sales) 23040 12960 Insurance (on the basis of square footage) 4200 1800 Depreciation (on the basis of square footage) 10500 4500 Office expenses (on the basis of number of employees) 30000 20000 Total Indirect expenses 67740 39260 Net Income 38260 -9260

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