Burien, Inc., operates a retail store with two departments, A and B. Its departm
ID: 2455968 • Letter: B
Question
Burien, Inc., operates a retail store with two departments, A and B. Its departmental income statement for the current year follows:
BURIEN, INC.
Departmental Income Statement
For Year Ended December 31
Dept. A
Dept. B
Combined
Sales.............................................................
$180,000
$200,000
$380,000
Direct expenses............................................
129,900
142,870
272,770
Contributions to overhead...........................
$ 50,100
$ 57,130
$107,230
Indirect expenses:
Depreciation--Building .........................
10,000
11,760
21,760
Maintenance..........................................
1,600
1,700
3,300
Utilities...................................................
6,200
6,320
12,520
Office expenses.....................................
1,800
2,000
3,800
Total indirect expenses .........................
$ 19,600
$ 21,780
$ 41,380
Net income...................................................
$ 30,500
$ 35,350
$ 65,850
Burien allocates building depreciation, maintenance, and utilities on the basis of square footage. Office expenses are allocated on the basis of sales.
Management is considering an expansion to a three-department operation. The proposed Department C would generate $120,000 in additional sales and have a 17.5% contribution to overhead. The company owns its building. Opening Department C would redistribute the square footage to each department as follows: A, 19,040; B, 21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance, $500; utilities, $3,800; and office expenses, $1,200.
Complete the following departmental income statements, showing projected results of operations for the three sales departments. (Round amounts to the nearest whole dollar.)
Dept. A
Dept. B
Dept. C
Combined
Sales.........................................................................
$180,000
$200,000
Direct expenses.......................................................
129,900
142,870
Contributions to overhead......................................
$ 50,100
$ 57,130
Indirect expenses......................................................
Depreciation—building......................................
Maintenance.......................................................
Utilities..............................................................
Office expenses..................................................
Total indirect expenses......................................
Net income...............................................................
BURIEN, INC.
Departmental Income Statement
For Year Ended December 31
Dept. A
Dept. B
Combined
Sales.............................................................
$180,000
$200,000
$380,000
Direct expenses............................................
129,900
142,870
272,770
Contributions to overhead...........................
$ 50,100
$ 57,130
$107,230
Indirect expenses:
Depreciation--Building .........................
10,000
11,760
21,760
Maintenance..........................................
1,600
1,700
3,300
Utilities...................................................
6,200
6,320
12,520
Office expenses.....................................
1,800
2,000
3,800
Total indirect expenses .........................
$ 19,600
$ 21,780
$ 41,380
Net income...................................................
$ 30,500
$ 35,350
$ 65,850
Explanation / Answer
Solution :
Dept. A
Dept. B
Dept. C
Combined
Sales
180000
200000
120000
500000
Direct expenses
129,900
142,870
99000
371,770
Contributions to overhead
50,100
57,130
21000
128,230
Indirect expenses:
Depreciation--Building *
7,616
8,704
5,440
21,760
Maintenance*
1,330
1,520
950
3,800
Utilities*
5,712
6,528
4,080
16,320
Office expenses**
1800
2000
1200
5000
Total indirect expenses
16,458
18,752
11,670
41,380
Net income
33,642
38,378
9,330
81,350
square footage
19040
21760
13600
54,400
*RATIO to divide depreciation, maintenance & utilities
0.35
0.4
0.25
1
Sales
180000
200000
120000
500,000
**sales ratio
0.36
0.4
0.24
1
Dept. A
Dept. B
Dept. C
Combined
Sales
180000
200000
120000
500000
Direct expenses
129,900
142,870
99000
371,770
Contributions to overhead
50,100
57,130
21000
128,230
Indirect expenses:
Depreciation--Building *
7,616
8,704
5,440
21,760
Maintenance*
1,330
1,520
950
3,800
Utilities*
5,712
6,528
4,080
16,320
Office expenses**
1800
2000
1200
5000
Total indirect expenses
16,458
18,752
11,670
41,380
Net income
33,642
38,378
9,330
81,350
square footage
19040
21760
13600
54,400
*RATIO to divide depreciation, maintenance & utilities
0.35
0.4
0.25
1
Sales
180000
200000
120000
500,000
**sales ratio
0.36
0.4
0.24
1
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