Departmental Income Statement Perkins Appliance & Furniture Company has two depa

Question

Departmental Income Statement
Perkins Appliance & Furniture Company has two departments, appliances and furniture. Operating information for 2016 appears below.

Common operating expenses of the firm were $180,000.

a. Prepare a departmental income statement showing departmental contribution to common expenses and net income of the firm. Assume an overall effective income tax rate of 40%. Perkins uses a periodic inventory system.

Do not use negative signs with any of your answers below.

b. Calculate the gross profit percentage for each department.

Round to the nearest whole percentage.

Appliance department

Answer

%

Furniture department

Answer

%

c. If the common expenses were allocated 70% to the appliance department and 30% to the furniture department, what would the net income be for each department?

Do not use negative signs with any of your answers below.

Alliance Department Furniture Department Inventory, January 1, 2016 $146,000 $116,000 Inventory, December 31, 2016 49,600 22,000 Net sales 1,120,000 760,000 Purchases 640,000 480,000 Purchases discounts 8,000 6,000 Transporation in 18,000 16,000 Traceable departmental expenses 179,600 62,000

Explanation / Answer

Solution a:

Solution b:

Gross profit percentage = Gross profit / Net Sales

Appliance department = $373,600 / $1,120,000 = 33%

Furniture department = $176,000 / $760,000 = 23%

Solution c:

Perkins Appliances and Furniture Company Departmental Income statement For the year ended December 31, 2016 Particulars Appliance deparment Furniture department Total Net Sales $1,120,000.00 $760,000.00 $1,880,000.00 Cost of goods sold: Inventory, Jan1, 2016 $146,000.00 $116,000.00 $262,000.00 Purchases $640,000.00 $480,000.00 $1,120,000.00 Purchase discounts -$8,000.00 -$6,000.00 -$14,000.00 Transporation In $18,000.00 $16,000.00 $34,000.00 Cost of goods available for sale $796,000.00 $606,000.00 $1,402,000.00 Inventory, Dec 31, 2016 -$49,600.00 -$22,000.00 -$71,600.00 Cost of goods sold $746,400.00 $584,000.00 $1,330,400.00 Gross Profit $373,600.00 $176,000.00 $549,600.00 Traceble department expenses $179,600.00 $62,000.00 $241,600.00 Contribution to common expenses $194,000.00 $114,000.00 $308,000.00 common expenses $180,000.00 Income before tax $128,000.00 Income tax expense (40%) $51,200.00 Net Income $76,800.00

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