Question

Vortex Company operates a retail store with two departments. Information about those departments follows.

	Department A			Department B
Sales	$	838,500		$	451,500
Cost of goods sold		440,000			293,475
Direct expenses:
Salaries		123,000			86,000
Insurance		16,000			11,000
Utilities		21,000			29,500
Depreciation		16,000			13,000
Maintenance		6,400			5,800

The company also incurred the following indirect costs.

Salaries	$26,000
Insurance	6,600
Depreciation	14,600
Office expenses	40,000

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		32,200			77
B		13,800			33

Required:
1. Determine the departmental contribution to overhead and the departmental net income for department A and Department B.
2. Should Department B be eliminated?

VORTEX COMPANY Departmental Contribution Statements Department A Department B Sales $ 838,500 $ 451,500 Cost of goods sold 440,000 293,475 Gross profit 398,500 158,025 Direct expenses Salaries 123,000 86,000 Insurance 16,000 11,000 Utilities 21,000 29,500 Depreciation 16,000 13,000 Maintenance 6,400 5,800 182,400 145,300 Total direct expenses Departmental contributions to overhead Allocated indirect expenses Salaries Insurance Depreciation Office 16,9001 9,100 Total indirect expenses Operating income (loss) 16,900 (16,900) 9,100 (9,100) $ $

Answer 1

Answer-1)-

VORTEX COMPANY
DEPARTMENTAL CONTRIBUTION STATEMENTS
PARTICULARS	DEPARTMENT A	DEPARTMENT B
	$	$
Sales	838500	451500
Less- Cost of goods sold	440000	293475
Gross Profit	398500	158025
Less- Direct Expenses
Salaries	123000	86000
Insurance	16000	11000
Utilities	21000	29500
Depreciation	16000	13000
Maintenance	6400	5800
Total Direct expenses	182400	145300
Departmental contribution to overhead	216100	12725
Less- Allocated indirect expenses
Salaries	(26000*838500)/1290000=16900	(26000*451500)/1290000=9100
Insurance	(6600*32200)/46000=4620	(6600*13800)/46000=1980
Depreciation	(14600*32200)/46000=10220	(14600*13800)/46000=4380
Office	(40000*77)/110 =28000	(40000*33)/110 =12000
Total indirect expenses	59740	27460
Operating Income (loss)	156360	-14735

2)- Department B should not be eliminated because it provides a positive departmental contribution.