Question

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

	Department A			Department B
Sales	$	825,500		$	444,500
Cost of goods sold		465,000			288,925
Direct expenses
Salaries		124,000			85,000
Insurance		15,000			10,400
Utilities		24,000			24,000
Depreciation		19,000			13,000
Maintenance		6,300			5,700

The company also incurred the following indirect costs.

Salaries	$33,000
Insurance	7,000
Depreciation	14,400
Office expenses	48,000

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		29,400			66
B		12,600			44

Required:
1. Determine the departmental contribution to overhead and the departmental net income for department A and Department B. (Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

VORTEX COMPANY Departmental Contribution Statements Department A Department B Direct expenses Total direct expenses Allocated indirect expenses Total indirect expenses Operating income (loss)

2. Should Department B be eliminated?

• Yes

• No

Answer 1

Requirement: 1 VORTEX COMPANY Departmental Contribution Statements Department A Department B Sales 825500 444500 Less: Cost of goods sold 465000 288925 Gross profit 360500 155575 Direct Expenses: Salaries 124000 85000 Insurance 15000 104001 Utilities 24000 24000 Depreciation 19000 13000 Maintenance 6300 5700 Total direct expenses 188300 138100 Department contribution to over head 172200 17475 Allocated indirect expenses Salaries (65% and 35%) * 33000 21450 11550 Insurance (70% and 30%) * 7000 4900 2100 Depreciation(70% and 30%) * 14400 10080 4320 Office expenses (60% and 40%) * 48000 28800 19200 Total indirect expenses 65230 37170 Department Net Income (loss) 106970 -19695 Requirement: 2 NO