Financial and Managerial Accounting (Looseleaf) (Custom Package)
Financial and Managerial Accounting (Looseleaf) (Custom Package)
6th Edition
ISBN: 9781259754883
Author: Wild
Publisher: MCG
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Chapter 22, Problem 4PSB

1.

To determine

The departmental contribution to overhead and the departmental net income.

1.

Expert Solution
Check Mark

Explanation of Solution

The departmental contribution to overhead and the departmental net income are determined as follows.

S. Company
Departmental Contribution Statement
Particulars Video Music
Sales 370,500 279,500
Cost of goods sold 320,000 175,000
Gross profit 50,500 104,500
Direct expenses    
Salaries expense 35,000 25,000
Insurance 4,200 3,700
Utilities 5,000 4,500
Maintenance 12,000 10,000
Total direct expenses 56,200 43,200
Departmental contribution to overhead (5,700) 61,300
Indirect expenses    
Salaries expenses 16,200 10,800
Office expenses 2,000 1,200
Advertisement 8,550 6,450
Total indirect expenses 26,750 18,450
Net income (loss) (32,450) 42,850

Table – 1

Hence, the Videos department suffers a net loss of $32,450 and the Music department has a net income of $42,850.

Working note:

1. Compute the percentage of the employees in department of video.

Percentageofemployees(Video)=Employees(Video)Totalemployees=35×100=60%

2. Compute the percentage of the employees in department of music.

Percentageofemployees(Music)=Employees(Music)Totalemployees=25×100=40%

3. Compute salary allocation on the basis of the percentage of the employees of department video.

Deparmentsalary (Video)=Totalsalary×Percentageofemployees=$27,000×60%=$16,200

4. Compute the salary allocation on the basis of the percentage of the employees of department music.

Deparmentsalary (Music)=Totalsalary×Percentageofemployees=$27,000×40%=$10,800

5. Compute the percentage of the sales in department of music and video.

Percentageofsales (Video)=Sales (Video)Totalsales=370,500650,000×100=57%

Percentageofsales (Music)=Sales (Music)Totalsales=279,500650,000×100=43%

6. Compute the advertisement expense allocation on the basis of the percentage of the sales of department music and video.

Deparmentsales (Video)=TotalAdvertisementexpense×Percentageofsales=$15,000×57%=$8,550

Deparmentsales (Music)=TotalAdvertisementexpense×Percentageofsales=$15,000×43%=$6,450

7. Compute the percentage of the area used in department of music and video.

Percentageofarea (Video)=Area (Video)Totalarea=5000sq.feet8000sq.feet×100=62.5%

Percentageofarea (Music)=Area (Music)Totalarea=3000sq.feet8000sq.feet×100=37.5%

8. Compute the office expense allocation on the basis of the percentage of the area used by department of music and video.

Deparmentofficeexpense (Video)=Totalofficeexpense×Percentageofarea=$3,200×62.5%=$2,000

Deparmentofficeexpense (Music)=Totalofficeexpense×Percentageofarea=$3,200×37.5%=$1,100

2.

To determine

Whether the guitar department should be eliminated.

2.

Expert Solution
Check Mark

Explanation of Solution

• Form the above information, it can be seen that departmental contribution to overhead is negative in the case of video and music.

• The total indirect expenses of the video and music department are $26,750 and $18,450 respectively.

• So, it can be said that the video department cannot recover its direct cost and it is advisable to eliminate the video department.

Conclusion

Hence, the guitar department should be eliminated.

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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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