Question

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

	Department A			Department B
Sales	$	832,000		$	448,000
Cost of goods sold		455,000			291,200
Direct expenses
Salaries		119,000			84,000
Insurance		13,500			10,100
Utilities		23,500			29,000
Depreciation		17,000			13,500
Maintenance		6,700			5,200

The company also incurred the following indirect costs.

Salaries	$28,000
Insurance	7,600
Depreciation	14,200
Office expenses	46,000

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		29,400			66
B		12,600			44

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.)

VORTEX COMPANY Departmental Contribution Statements Department A Department B Sales $832,000 $448,000 Cost of goods sold 455,000 291,200 Gross profit 377,000 156,800 Direct expenses Salaries 119,000 84,000 Insurance 13,500 10,100 Utilities 23,500 29,000 Depreciation 17,000 13,500 Maintenance 6,700 5,200 Total direct expenses 179,700 141,800 Departmental contributions to overhead 197,300 15,000 Allocated indirect expenses Salaries Insurance Depreciation Office Total indirect expenses 0 0 Operating Income (loss) $197,300 $15,000

Answer 1

Departmental Contribution Statements :-

Particulars	Department A	Department B
Sales (A)	$832000	$448000
Less : Cost of Goods Sold (B)	455000	291200
Gross Margin C = A - B	377000	156800
Direct Expenses :-
Salaries	119000	84000
Insurance	13500	10100
Utilities	23500	29000
Depreciation	17000	13500
Maintenance	6700	5200
Total Direct Expenses (D)	179700	141800
Departmental Contribution to Overhead (E) = (C - D)	197300	15000
Allocated Indirect Expenses
Salaries (Working Note 1)	18200	9800
Insurance (Working Note 2)	5320	2280
Depreciation (Working Note 3)	9940	4260
Office Expenses (Working Note 4)	27600	18400
Total Allocated Indirect Expenses (F)	61060	34740
Departmental Net Income (G) = (E - F)	136240	(19740)

Working Note ;-

1) Salaries Allocation ;-

Particulars	Sales	%	Amount($)	Allocated
Department A	$832000	65	28000	$18200
Department B	$448000	35	28000	$9800
Total	$1280000	100		$28000

2) Insurance Allocation :-

Particulars	Sq. Ft.	%	Amount($)	Allocated
Department A	29400	70	7600	$5320
Department B	12600	30	7600	$2280
Total	42000	100		$7600

3) Depreciation Allocation :-

Particulars	Sq. Ft.	%	Amount($)	Allocated
Department A	29400	70	14200	$9940
Department B	12600	30	14200	$4260
Total	42000	100		$14200

4) Office Expense Allocation :-

Particulars	Employees	%	Amount($)	Allocated
Department A	66	60	46000	$27600
Department B	44	40	46000	$18400
Total	110	100		$46000