Question

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

	Department A			Department B
Sales	$	812,800		$	457,200
Cost of goods sold		435,000			297,180
Direct expenses
Salaries		115,000			86,000
Insurance		18,500			10,300
Utilities		22,500			25,500
Depreciation		15,000			13,500
Maintenance		6,800			5,500

The company also incurred the following indirect costs.

Salaries	$28,000
Insurance	8,000
Depreciation	14,400
Office expenses	49,000

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			77
B		12,600			33

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.)

Answer 1

Calculation of Sales %

Department A =     $812800/$1270000 * 100 = 64%

Department B =       $457200/$1270000 * 100 = 36%

Calculation of Square Footage %

Department A = 29400/42000*100 = 70%

Department B = 12600/42000*100 = 30%

Calculation of Employee %

Department A = 77/110*100 = 70%

Department B = 33/110*100 = 30%

Calculation of Contribution and Net income departmental wise

Particular	Department A	Department B	Total
Sales	$ 812,800	$ 457,200	$ 1,270,000
Less :
Cost of Goods Sold	$ 435,000	$ 297,180	$    732,180
Gross Profit	$ 377,800	$ 160020	$   537,820
Direct Expenses
Salaries	$ 115,000	$   86,000	$    201,000
Insurance	$   18,500	$   10,300	$      28,800
Utilities	$   22,500	$   25,500	$      48,000
Depreciation	$   15,000	$   13,500	$      28,500
Maintenance	$     6,800	$     5,500	$      12,300
Cont. to Overhead	$ 200,000	$   19,220	$    219,220
Contribution %	24.61%	4.20%	17.26%
Indirect Cost
Salaries	$    17920	$    10,080	$     28,000
Insurance	$     5,600	$      2,400	$       8,000
Depreciation	$   10,080	$      4,320	$     14,400
Office expenses	$   34,300	$    14,700	$     49,000
Net Income	$ 132,100	$ (12,280)	$   119,820

  

Notes :-

Departmental contribution to overhead is the amount of money a single department has available after its direct expenses are paid to help pay for the overhead of the business. Departmental contribution to overhead is calculated by subtracting direct expenses from the department’s revenues. This calculation assumes that all indirect expenses are considered overhead.