Vortex Company operates a retail store with two departments. Information about t

Question

Vortex Company operates a retail store with two departments. Information about those departments follows.

Indirect costs are allocated as follows: salaries on the basis of sales; insurance and depreciation on the basis of square footage; and office expenses on the basis of number of employees. Additional information about the departments follows.

Determine the departmental contribution to overhead and the departmental net income for department A and Department B. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

Should Department B be eliminated?

Vortex Company operates a retail store with two departments. Information about those departments follows.

Explanation / Answer

Solution:-

1. Determine the departmental contribution to overhead and the departmental net income for department A and Department B:-

2. Should Department B be eliminated:-

Yes, Due to loss of $11,140.

Please Rate or comment if you have any doubt regarding this solution.

VORTEX COMPANY Departmental Contribution Statements Department A Department B Sales 825,600 464,400 - Cost of goods sold 410,000 301,860 Gross profit (a) 415,600 162,540 Direct expenses:- Salaries 121,000 85,000 Insurance 17,000 11,000 Utilities 23,000 27,500 Depreciation 17,500 12,500 Maintenance 6,600 5,700 Total direct expenses (b) 185,100 141,700 Contribution to overhead (c) = (a) - (b) 230,500 20,840 Allocated indirect expenses: Salaries 22,400 12,600 Insurance 5,320 2,280 Depreciation 9,800 4,200 Office expenses 30,100 12,900 Total indirect expenses (d) 67,620 31,980 Operating Income (loss) (c) - (d) 162,880 (11,140)

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