Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data has...
Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data has been collected for 2018 for its three departments:
|
Sportswear |
Lingerie |
Appliances |
|
|
Sales |
$160,000 |
$120,000 |
$120,000 |
|
Direct advertising costs |
$ 7,000 |
$ 12,000 |
$ 3,000 |
|
Newspaper ad space |
62% |
20% |
18% |
How much of the indirect advertising costs will be allocated to the
Lingerie Department if direct advertising costs is the activity
driver? (Round to the nearest dollar if necessary)
a.$12,000
b.$6,000
c.$3,000
d.$3,273
Garden of Eden Company manufactures two products, Brights and
Dulls, from a joint process. A production run costs $50,000 and
results in 250 units of Brights and 1,000 units of Dulls. Both
products must be processed past the split-off point, incurring
separable costs for Brights of $60 per unit and $40 per unit for
Dulls. The market price is $250 for Brights and $200 for
Dulls.
What is the gross profit for Dulls assuming the constant gross
margin percentage method is used?
a.$120,000
b.$150,000
c.$37,500
d.$200,000
Homework Answers
1. (d) $3,273
Explanation:
The indirect advertising cost is allocated on the basis of the direct advertising cost.
Total direct advertising cost = $7,000 + $12,000 + $3,000 i.e. $22,000
Indirect advertising cost allocated to Lingerie Department = Indirect Advertising cost * (Direct advertising cost of Lingerie Department / Total Direct Advertising Cost)
= $6,000 * ($12,000 / $22,000)
= $3,272.727
2. (a) $120,000
Explanation:
Total Cost = Joint product cost + Post separation cost of Brights + Post separation cost of Dulls
= $50,000 + (250 units @ $60 each) + (1,000 units @ $40 each)
= $50,000 + $15,000 + $40,000
= $105,000
Total Revenue = Revenue from Brights + Revenue from Dulls
= (250 units @ $250) + (1,000 units @ $200)
= $62,500 + $200,000
= $262,500
Gross Margin = Total Revenue - Total Cost
= $262,500 - $105,000
= $157,500
Gross margin = (Cost Margin / Total Revenue) * 100
= ($157,500 / $262,500) * 100
= 60%
Assuming the same gross margin percentage method for joint product costing, the gross margin from both the products will be identical. Therefore, the gross margin of Dulls will be 60%.
Gross Margin of Dulls = Revenue from Dulls * Gross margin %
= $200,000 * 60%
= $120,000
Add Answer to:
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