Loose Leaf for Fundamental Accounting Principles
Loose Leaf for Fundamental Accounting Principles
23rd Edition
ISBN: 9781259687709
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 24, Problem 8E
To determine

Concept Introduction:

Income Statement:

The income statement can be explained as the statement giving details about the revenues, incomes, gains and expenses, losses etc. The income statement is prepared to determine net income or loss of the business by listing all the revenues, gains and expenses and losses of the business.

Contribution margin income statement:

Contribution margin income statement can be defined as the income statement which explains elements like contribution margin from the sales unlike the traditional income statement.

Requirement 1

To prepare:

Departmental Income statement for 2017

Expert Solution
Check Mark

Answer to Problem 8E

Solution:

The departmental Income statement for 2017 –

Jansen Company
Ski Departmental Income Statement
Sales   605,000
Less: Cost of Goods sold   425,000
Gross profit   180,000
Less: Other Operating Expenses    
Salaries 112,000  
Utilities 14,000  
Depreciation 42,000  
Office expenses 20,000  
Total operating expenses   188,000
     
Net Operating Income (or Loss)   -8,000

Explanation of Solution

The above explanation can be explained as under –

Given,

• Sales = $ 605,000

• Cost of goods sold = $ 425,000

• Salaries = $ 112,000

• Utilities = $ 14,000

• Depreciation = $ 42,000

• Office Expenses = $ 20,000

Gross profit –

Gross profit = Sales  Cost of Goods soldGross profit = $ 605,000  $ 425,000Gross profit = $ 180,000

Total Operating expenses –

Total Operating expenses = Salaries + Utilities + Depreciation + Office ExpensesTotal Operating expenses = $ 112,000 + $ 14,000 + $ 42,000 + $ 20,000Total Operating expenses = $ 188,000

Net Income (or loss) –

Net Income (or loss) = Gross Profit  Total operating expensesNet Income (or loss) = $ 180,000  $ 188,000Net Income (or loss) =  $ 8,000

Conclusion

Thus, the departmental income statement has been prepared.

To determine

Requirement 2

To compute:

Department Contribution to overhead report

Expert Solution
Check Mark

Answer to Problem 8E

Solution:

The department Contribution to overhead report = $ 40,000

Explanation of Solution

Jansen Company
Ski Departmental Contribution Income Statement
Sales   6,05,000
Less: Cost of Goods sold   4,25,000
Gross profit   1,80,000
Less: Other Operating Expenses -direct    
Salaries 97,000  
Utilities 11,000  
Depreciation 32,000  
     
Total direct operating expense   1,40,000
     
Net Contribution margin   40,000

The above contribution income statement provides net contribution of $ 40,000. The preparation of department contribution income statement can be explained as under –

Given,

• Sales = $ 605,000

• Cost of goods sold = $ 425,000

Only direct expenses are considered –

• Salaries = $ 97,000 (i.e. $ 97,000 as direct, as $ 15,000 is indirect)

• Utilities = $ 11,000 (i.e. $ 11,000 as direct, as $ 3,000 is indirect)

• Depreciation = $ 32,000(i.e. $ 32,000 as direct, as $ 10,000 is indirect)

• Office Expenses = $ 0 (i.e. all of the cost is indirect)

Gross profit –

Gross profit = Sales  Cost of Goods soldGross profit = $ 605,000  $ 425,000Gross profit = $ 180,000

Total Operating expenses –

Total Operating expenses = Salaries + Utilities + DepreciationTotal Operating expenses = $ 97,000 + $ 11,000 + $ 32,000Total Operating expenses = $ 140,000

Net Contribution Margin –

Net Contribution Margin = Gross Profit  Total operating expensesNet Contribution Margin = $ 180,000  $ 140,000Net Contribution Margin = $ 40,000

Conclusion

Thus, the contribution of Ski to overhead report has been determined.

To determine

Requirement 3

To decide:

Should Jansen eliminate the ski department?

Expert Solution
Check Mark

Answer to Problem 8E

Solution:

No, Jansen should not eliminate the ski department as it is giving a positive contribution of $ 40,000 to the business.

Explanation of Solution

The above answer can be explained as under –

The Ski department is giving a positive contribution to Jansen as $ 40,000. If all of the total expenses whether direct or indirect are taken together, Ski department has a net operating loss of $ 8,000 but if only direct expenses are considered, there is positive contribution of $ 40,000 to the business.

Thus, keeping in mind this fact, Jansen should not eliminate the Ski Department from the business.

Conclusion

Thus, Jansen should not eliminate the ski department as it is giving a positive contribution of $ 40,000 to the business.

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Chapter 24 Solutions

Loose Leaf for Fundamental Accounting Principles

Ch. 24 - Prob. 11DQCh. 24 - Prob. 12DQCh. 24 - Prob. 13DQCh. 24 - Prob. 14DQCh. 24 - Prob. 15DQCh. 24 - Prob. 16DQCh. 24 - Prob. 17DQCh. 24 - Prob. 18DQCh. 24 - Prob. 19DQCh. 24 - Prob. 20DQCh. 24 - Allocation and measurement terms C1 In each blank...Ch. 24 - Basis for cost allocation C1 For each of the...Ch. 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 - Prob. 11QSCh. 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. 20QSCh. 24 - Exercise 24-1 Responsibility accounting...Ch. 24 - Exercise 24-2 Responsibility accounting...Ch. 24 - Exercise 24-3 Service department expenses...Ch. 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 - Prob. 22ECh. 24 - Prob. 23ECh. 24 - Problem WA Responsibility according perfortmance...Ch. 24 - Prob. 2APSACh. 24 - Prob. 3APSACh. 24 - Problem 24-4A Departmental contribution to income...Ch. 24 - Prob. 5APSACh. 24 - Prob. 1BPSBCh. 24 - Prob. 2BPSBCh. 24 - Prob. 3BPSBCh. 24 - Prob. 4BPSBCh. 24 - Prob. 5BPSBCh. 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. 8BTNCh. 24 - Prob. 9BTN
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