ACME Company operated 3 departments and during last period, the sales and direct

Question

ACME Company operated 3 departments and during last period, the sales and direct expenses were recorded as follows: SALES DIRECT EXPENSES DEPARTMENTAL INCOME Dept. A $24,000 $10,000 $14,000 Dept. B $36,000 $15,000 $21,000 Dept. C S60,000 S26,000 S34,000 TOTAL S120,000 $51,000 S69,000 The company also incurred the following indirect expenses Administrative and General Insurance Expense Promotion and Marketing Property Taxes S 6,000 $12,000 4,000 $ 8,000 The management of Hotel ABC has decided to distribute the above indirect expenses to the 3 departments using the below criteria: a. “Administrative and General" and "Promotion and Marketing are to be distributed base on sales mix The Property Taxes Expenses are to be distributed based on the square footage occupied by each department as follows: Dept. A 3,000 sq ft Dept. B = 5,000 sq ft Dept. C = 12,000 sq ft c. The Insurance Expenses are to be distributed equally among 3 departments Department A Department B Department C Total Departmental Net Income Administrative and General Promotion and Marketing $14,000 $21,000 S34,000 S69,000 Property Tax Insurance Expense Total Indirect Expenses Net Profit

Explanation / Answer

Department A Department B Department C Total Departmental Net Income                        14,000                 21,000                       34,000                        69,000 Administrative and General(24 : 36 : 60)                           1,200                    1,800                         3,000                          6,000 Promotion and Marketing (24 : 36 : 60)                              800                    1,200                         2,000                          4,000 Property Tax (3 : 5 : 12)                           1,200                    2,000                         4,800                          8,000 Insurance Expenses(Equally)                           4,000                    4,000                         4,000                        12,000 Total Indirect Expenses                           7,200                    9,000                       13,800                        30,000 Net Income                           6,800                 12,000                       20,200                        39,000

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