Axe co. has two operating departments supported by a number of service departmen
ID: 2505070 • Letter: A
Question
Axe co. has two operating departments supported by a number of service departments. The following information was collected for a recent period:
Direct costs
Dept. A dept. B indirect cost
Sale $724404 $356796
Salaries $122400 85700 36700
Insurance 20200 11000 5500
Utilities 23900 13900 2000
Depreciation 20700 11500 13800
Maintenance 7000 4700 29400
Office expenses 0 0 71100
Cogs 327600 121200
Indirect costs are allocated as follows: salaries on the basis of sales, office expenses on the basis of the number of employees, and all other costs on the basis of square footage. Additional information about the production departments follows:
Sq. footage #s of employees
Dept.A 14535 78
Dept. B 4845 52
Determine the departmental contribution to overhead and the departmental net income for each production department.
Explanation / Answer
Allocation of salaries to Dept A = 36700*724404 /(724404 +356796)= 24589
Allocation of salaries to Dept B = 36700*356796 /(724404 +356796)= 12111
Allocation of office expense to Dept A= 71100*78/(78+52)= $42660
Allocation of office expense to Dept B= 71100*52/(78+52)= $28440
Other overhead expenses = 5500+2000+13800+29400= 50700
Allocation of Other overhead expenses to Dept A = 50700*14535/(14535+4845)= 38025
Allocation of Other overhead expenses to Dept B= 50700*4845/(14535+4845)= 12675
Total overhead for Dep A = 24589+42660+38025= 105274
Total overhead for Dep B = 12111+28440+12675= 53226
net income for department A = 724404 -122400 -20200- 23900-20700-7000-327600 -105274= 97330
net income for department B = 356796 - 85700 -11000-13900-11500-4700-121200 -53226= 55570
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