Financial and Managerial Accounting (Looseleaf) (Custom Package)
Financial and Managerial Accounting (Looseleaf) (Custom Package)
6th Edition
ISBN: 9781259754883
Author: Wild
Publisher: MCG
Question
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Chapter 22, Problem 3PSA
To determine

Department contribution statement:

Department contribution statement can be defined as a financial statement through which a company can decide whether any department should be eliminated or not. To take this decision, the company needs a departmental contribution statement. If the department contribution statement figure is negative and income is positive, then the company takes the decision to eliminate the particular department causing the loss.

To prepare: The departmental income statement to show how the company’s predicted results of operations for calendar year 2016.

Expert Solution & Answer
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Explanation of Solution

Prepare the departmental income statement to show how the company’s predicted results of operations for calendar year 2016 as shown below.

Particulars Amount
($)
Amount
($)
Amount
($)
Amount
($)
  Clock Mirror Painting Combined
Sales (A) 140,400 59,400 50,000 199,800
Cost of goods sold (A - C) 68,796 36,828 22,500 128,124
Gross profit (C=A×B) 71,796 22,572 27,500 71,676
Gross profit margin (B) 51% 38% 55% 47.14%
Direct expense        
Sales salaries 20,000 7,000 8,000 35,000
Advertisement expense 1,200 500 800 2,500
Store supplies used 972 432 500 1,904
Deprecation-Equipment 1,500 300 200 2,000
Total direct expense 23,672 8,232 9,500 41,404
Allocated expense        
Rent expense 5,616 2,835 2,349 10,800
Utilities expense 2,080 1,050 870 4,000
Office expense 12,365.09 5,231.39 4,404 22,000
Total allocated expense 20,061 9,116 4,403.52 36,800
Total expense(D) 43,733 17,348 17,123 78,204
Net Income (E=CD) 27,871 5,224 10,377 43,204

Table – 1

Working note:

1. Calculation of increase in the sales of clock department.

Totalclock departmentsales=Clock departmentsale×Percentincreased insales=$130,000×108100=$140,400

2. Calculation of increase in the sales of mirror department.

Totalmirror departmentsales=(Mirror departmentsale×Percentincreasedinsales)=$55,000×108100=$59,400

3. Calculate the combined increased in sales.

Total combinedsales= Combinedsale×Percentincreasedinsales=$185,000×108100=$128,124

4. Calculate the gross profit margin of the clock department.

Grossprofitmargin=GrossprofitSale=$66,300$130,000=51%

5. Calculate the gross profit margin of the mirror department.

Grossprofitmargin=GrossprofitSale=$20,900$55,000=38%

6. Calculate the gross profit margin of combined sales.

Grossprofitmargin=GrossprofitSale=$87,200$185,000=47.14%

7. Calculate the gross profit of the clock department.

Grossprofit=Grossprofitmargin×Sale=$140,400×51%=$71,604

8. Calculate the gross profit of mirror department.

Grossprofit=Grossprofitmargin×Sale=$59,400×38%=$22,572

9. Calculate the gross profit of painting department.

Grossprofit=Grossprofitmargin×Sale=$50,000×55%=$27,500

10. Calculate the gross profit of combined sale.

Grossprofit=Grossprofitmargin×Sale=$199,800×47.14%=$94,185.72

11. Calculate the cost of goods sold of clock department.

Costofgoodssold=SaleGrossprofit=$140,400$71,604=$68,796

12. Calculate the cost of goods sold of mirror department.

Costofgoodssold=SaleGrossprofit=$59,400$22,572=$36,828

13. Calculate the cost of goods sold of painting department.

Costofgoodssold=SaleGrossprofit=$50,000$27,500=$22,500

14. Calculate the cost of goods sold of combined sales.

Costofgoodssold=SaleGrossprofit=$199,800$94,185.72=$105,614.28

15. Calculate the store supplies of the clock department.

Storesupliesused=Storesupplies×%increasedinthesale=$900×108100=$972

16. Calculate the store supplies of the mirror department.

Storesupliesused=Storesupplies×%increasedinthesales=$400×108100=$432

17. Calculate the combined store supplies of the department.

Combinedsupplies=(Clockdepartmentusedstoresupplies+Mirrordepartmentusedstoresupplies+Paintingdepartmentusedstoresupplies)=$972+$432+$500=$1,904

18. Calculate the new rent expense of the clock department.

Newrentexpense=Rentexpense×45usedbythedepartment=$7,020×45=$5,616

19. Calculate the new rent expense of the mirror department.

Newrentexpense=Rentexpense×34usedbythedepartment=$3,780×34=$2,835

20. Calculate the new rent expense of the painting department.

Rentexpense=[(Rentexpenseofclockdepartment5)+(Rentexpenseofmirrordepartment4)]=$7,0205+$3,7804=$1,404+$945=$2,349

21. Calculate the combined rent expense.

Combinedexpense=(Rentexpenseofclockdepartment+Rentexpenseofmirrordepartment+Rentexpenseofpaintingdepartment)=$5,616+$2,835+$2,349=$10,800

22. Calculate the new utilities expense of the clock department.

Newutilitiesexpense=Utilitiesexpense×45usedbythedepartment=$2,600×45=$2,080

23. Calculate the new utilities expense of the mirror department.

NewUtilitiesexpense=Utilitiesexpense×34usedbythedepartment=$1,400×34=$1,050

24. Calculate the new utilities expense of the painting department.

Utilitiesexpense=[(Utilitiesexpenseofclockdepartment5)+(Utilitiesexpenseofmirrordepartment4)]=$2,6005+$3,7804=$520+$945=$1,465

25. Calculate the office expense of the clock department.

NewOfficeexpense=SalesCombinedsale×Combinedexpense=$140,400$249,800×$22,000=$12,365

26. Calculate the office expense of the mirror department.

NewOfficeexpense=SalesCombinedsale×Combinedexpense=$59,400$249,800×$22,000=$5,231.39

27. Calculate the office expense of the painting department.

Officeexpense=(TotalofficeexpenseClockdepartmentexpenseMirrordepartmentexpense)=$22,000$12,365.09$5,231.39=$4,404

28. Calculate the net income of the clock department.

Netincome=GrossprofitTotalexpense=$71,604$43,733=$27,871

29. Calculate the net income of the mirror department.

Netincome=GrossprofitTotalexpense=$36,828$17,348=$5,224

30. Calculate the net income of the painting department.

Netincome=GrossprofitTotalexpense=$22,500$17,123=$10,377

Conclusion

Hence, the departmental income statement to show how the company’s predicted results of operations for calendar year 2016 is prepared as above.

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Chapter 22 Solutions

Financial and Managerial Accounting (Looseleaf) (Custom Package)

Ch. 22 - 6. What are two main goals in managerial...Ch. 22 - Prob. 7DQCh. 22 - Prob. 8DQCh. 22 - Prob. 9DQCh. 22 - Prob. 10DQCh. 22 - Prob. 11DQCh. 22 - Prob. 12DQCh. 22 - Prob. 13DQCh. 22 - Prob. 14DQCh. 22 - Prob. 15DQCh. 22 - Prob. 16DQCh. 22 - Prob. 17DQCh. 22 - Prob. 18DQCh. 22 - Prob. 19DQCh. 22 - Prob. 20DQCh. 22 - Prob. 1QSCh. 22 - Prob. 2QSCh. 22 - Prob. 3QSCh. 22 - Allocation and measurement terms C1 In each blank...Ch. 22 - Prob. 5QSCh. 22 - Prob. 6QSCh. 22 - Prob. 7QSCh. 22 - Prob. 8QSCh. 22 - Computing return on investment A1 Compute return...Ch. 22 - Computing residual income A1 Refer to the...Ch. 22 - Prob. 11QSCh. 22 - Computing profit margin and investment turnover A2...Ch. 22 - QS 22-13 Performance measures- balanced...Ch. 22 - Prob. 14QSCh. 22 - Prob. 15QSCh. 22 - Prob. 16QSCh. 22 - Prob. 17QSCh. 22 - Prob. 18QSCh. 22 - Prob. 19QSCh. 22 - Prob. 1ECh. 22 - Prob. 2ECh. 22 - Prob. 3ECh. 22 - Prob. 4ECh. 22 - Prob. 5ECh. 22 - Prob. 6ECh. 22 - Prob. 7ECh. 22 - Prob. 8ECh. 22 - Prob. 9ECh. 22 - Prob. 10ECh. 22 - Prob. 11ECh. 22 - Prob. 12ECh. 22 - Prob. 13ECh. 22 - Prob. 14ECh. 22 - Exercise 22-16 Performance measures-balanced...Ch. 22 - Prob. 16ECh. 22 - Prob. 17ECh. 22 - Prob. 18ECh. 22 - Prob. 19ECh. 22 - Prob. 20ECh. 22 - Prob. 21ECh. 22 - Prob. 1PSACh. 22 - Prob. 2PSACh. 22 - Prob. 3PSACh. 22 - Prob. 4PSACh. 22 - Prob. 5PSACh. 22 - Prob. 1PSBCh. 22 - Prob. 2PSBCh. 22 - Prob. 3PSBCh. 22 - Prob. 4PSBCh. 22 - Prob. 5PSBCh. 22 - Santana Rey’s two departments, computer consulting...Ch. 22 - Prob. 1BTNCh. 22 - Prob. 2BTNCh. 22 - Prob. 3BTNCh. 22 - Prob. 4BTNCh. 22 - Prob. 5BTNCh. 22 - Prob. 6BTNCh. 22 - Prob. 7BTNCh. 22 - Prob. 8BTNCh. 22 - Prob. 9BTN
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