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	$	825,600		$	464,400
Cost of goods sold		480,000			301,860
Direct expenses
Salaries		123,000			86,000
Insurance		18,500			10,000
Utilities		24,500			28,000
Depreciation		18,000			13,000
Maintenance		6,600			5,300

The company also incurred the following indirect costs.

Salaries	$32,000
Insurance	7,600
Depreciation	15,200
Office expenses	48,000

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		28,700			60
B		12,300			40

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

1	Income statement:
					Departments		Combined
					A	B
	Sales				825600	464400	1290000
	Less:
	Cost of goods sold				480000	301860	781860
	Direct expenses
	Salaries				1,23,000	86,000	209000
	Insurance				18,500	10,000	28500
	Utilities				24,500	28,000	52500
	Depreciation				18,000	13,000	31000
	Maintenance				6,600	5,300	11900
	Contribution to overhead				1,55,000	20,240	175240
	Less: Indirect costs
	Salaries			(Note:1)	20480	11520	32000
	Insurance			(Note:2)	5320	2280	7600
	Depreciation			(Note:3)	10640	4560	15200
	Office expenses			(Note:4)	28800	19200	48000
	Net income				89,760	-17,320	72,440
	Note:1
	Salaries are allocated on the basis of sales @ 825600:464400
	Department A=32000*(825600/1290000)=$ 20480
	Department B=32000*(464400/1290000)=$ 11520
	Note:2
	Insurance are allocated on the basis of square footage @ 28700:12300
	Department A=7600*(28700/41000)=$ 5320
	Department B=7600*(12300/41000)=$ 2280
	Note:3
	Depreciation are allocated on the basis of square footage @ 28700:12300
	Department A=15200*(28700/41000)=$ 10640
	Department B=15200*(12300/41000)=$ 4560
	Note:4
	Office expenses are allocated on the basis of number of employees @ 60:40
	Department A=48000*(60/100)=$ 28800
	Department B=48000*(40/100)=$ 19200