Principles of Financial Accounting.
Principles of Financial Accounting.
22nd Edition
ISBN: 9780077632892
Author: John J. Wild
Publisher: McGraw Hill
Question
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Chapter 24, Problem 3AP
To determine

Prepare departmental income statements that show the company’s predicted results of operations for calendar year 2016 for the three operating (selling) departments and their combined totals

Expert Solution & Answer
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Explanation of Solution

Department: A division of the company or an organization which performs the functions of the company is referred to as department.

Prepare departmental income statements.

Company W
Forecasted Departmental Income Statements
For Year Ended December 31, 2016
ParticularsClockMirrorPaintingsCombined
Sales (Refer Table (2))$140,400$59,400$50,000$249,800
Less: Cost of goods sold (Refer Table (3))$68,796$36,828$22,500$128,124
    Gross profit$71,604$22,572$27,500$121,676
Less: Direct expenses    
  Sales salaries $20,000$7,000$8,000 $35,000
  Advertising$1,200$500$800$2,500
  Store supplies used (Refer Table (4))$972$432$500$1,904
  Depreciation of equipment$1,500$300$200$2,000
  Total direct expenses (A)$23,672$8,232$9,500$41,404
Allocated expenses    
  Rent expense (Refer Table (5))  $5,616  $2,835$2,349 $10,800
  Utilities expense(Refer Table (5))$2,080$1,048$872$4,000
  Share of office department  expenses (Refer Table (6))$12,364$5,236$4,400$22,000
  Total allocated expenses (B)$20,060$9,119$7,621$36,800
Total expenses (A)+(B)$43,732$17,351$17,121$78,204
Net income$27,872$5,221$10,379$  43,472

Table (1)

Working note:

(1) Determine the sales for each department.

Particulars ClockMirrorPaintings
Sales for the year 2015 (A)$130,000$  55,000 
Growth rate [100+(100×8%)] (B)108%108% 
Sales for the year 2016 (A)×(B) $140,400$59,400$50,000

Table (2)

(2) Determine the cost of goods sold for each department.

Particulars ClockMirrorPaintings
Cost of goods sold for the year 2015 (A)$63,700$34,100 
Sales for the year 2015 (B)$130,000$55,000 
Percentage of Cost of goods sold for the year 2015[(A)÷(B)]×10049.0%62.0% 
 
Sales for the year 2016 (C)$140,400$59,400$50,000
Percentage of Cost of goods sold for the year 2016 (D)49.0%62.0%45%
Cost of goods sold for the year 2016 (C)×(D)$68,796$36,828$22,500

Table (3)

Note:

  • Refer Table (2) for the sales revenue for the year 2016.
  • The gross margin is 55% on sales. So, the percentage of goods sold for year 2016 is (155%)45%.

(3) Determine the store supplies expense for each department.

ParticularsClockMirrorPaintings
Store supplies used in 2015$900$400 
Growth rate [100+(100×8%)] (B)108%108% 
Store supplies used in 2016$972$432$500

Table (4)

(4) Allocate the rent and utilities for each department.

ParticularsClockMirrorPaintingsTotal
Rent expense for 2015 $7,020$3,780 $10,800
One-fifth from clock to paintings (1,404) $1,404 
One-fourth from mirror to paintings  $(945)$945 
Allocation of rent expense of $10,800 (A)$5,616$2,835$2,349$10,800
 
Percentage of total rent expense (B) [(A)÷$10,800]×10052.0%26.2%21.8% 
    
Allocation of utilities expense [(B)×$4,000]÷100$2,080$1,048$872$4,000

Table (5)

(5) Allocate the office department expense.

ParticularsClockMirrorPaintingsTotal
Sales for the year 2016(A)$140,400$59,400$50,000$249,800
Percent of total sales  (B)[(A)÷$249,800]×10056.2%23.8%20.0% 
     
Office department expense for 2016 (C) [(B)×$22,000]÷100$12,364$5,236$4,400$22,000

Table (6)

Note: The total office department for the year 2015 is $15,000 and the management expects in the increase in the expense by $7,000. Thus, the total office department expense is ($15,000+$7,000) $22,000.

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Chapter 24 Solutions

Principles of Financial Accounting.

Ch. 24 - Prob. 6DQCh. 24 - Prob. 7DQCh. 24 - Prob. 8DQCh. 24 - Prob. 9DQCh. 24 - Prob. 10DQCh. 24 - Prob. 11DQCh. 24 - 12.A What is a transfer price? Under what...Ch. 24 - 13.B What is a joint cost? How are joint costs...Ch. 24 - Prob. 14DQCh. 24 - Prob. 15DQCh. 24 - Prob. 16DQCh. 24 - Prob. 17DQCh. 24 - Prob. 18DQCh. 24 - Prob. 19DQCh. 24 - Prob. 20DQCh. 24 - Prob. 1QSCh. 24 - Prob. 2QSCh. 24 - Prob. 3QSCh. 24 - Prob. 4QSCh. 24 - Prob. 5QSCh. 24 - Prob. 6QSCh. 24 - Prob. 7QSCh. 24 - Prob. 8QSCh. 24 - Prob. 9QSCh. 24 - Prob. 10QSCh. 24 - QS 24-11 Fill in the blanks in the schedule below...Ch. 24 - Prob. 12QSCh. 24 - Prob. 13QSCh. 24 - Prob. 14QSCh. 24 - Prob. 15QSCh. 24 - Prob. 16QSCh. 24 - Prob. 17QSCh. 24 - Prob. 18QSCh. 24 - Prob. 19QSCh. 24 - Prob. 1ECh. 24 - Prob. 2ECh. 24 - Prob. 3ECh. 24 - Prob. 4ECh. 24 - Prob. 5ECh. 24 - Prob. 6ECh. 24 - Prob. 7ECh. 24 - Prob. 8ECh. 24 - Prob. 9ECh. 24 - Prob. 10ECh. 24 - Prob. 11ECh. 24 - Prob. 12ECh. 24 - Prob. 13ECh. 24 - Prob. 14ECh. 24 - Prob. 15ECh. 24 - Prob. 16ECh. 24 - Prob. 17ECh. 24 - Prob. 18ECh. 24 - Prob. 19ECh. 24 - Prob. 20ECh. 24 - Prob. 21ECh. 24 - Problem 24-1A Billie Whitehorse, the plant manager...Ch. 24 - Problem 24-2A National Bank has several...Ch. 24 - Prob. 3APCh. 24 - Prob. 4APCh. 24 - Prob. 5APCh. 24 - Problem 24-1B Britney Brown, the plant manager of...Ch. 24 - Prob. 2BPCh. 24 - Prob. 3BPCh. 24 - Prob. 4BPCh. 24 - Prob. 5BPCh. 24 - Prob. 24SPCh. 24 - Prob. 1BTNCh. 24 - Prob. 2BTNCh. 24 - Prob. 3BTNCh. 24 - Prob. 4BTNCh. 24 - Prob. 5BTNCh. 24 - Prob. 6BTNCh. 24 - Prob. 7BTNCh. 24 - Prob. 9BTN
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