Use this information to allocate each of the three indirect expenses across the

ID: 2777281 • Letter: U

Question

Use this information to allocate each of the three indirect expenses across the four departments Prepare a summary table that reports the indirect expenses assigned to each of the four departments. reports the indirect expenses assigned to each of the four departments Use this information to allocate each of the three indirect expenses across the four departments Prepare a summary table that reports the indirect expenses assigned to each of the four departments. reports the indirect expenses assigned to each of the four departments

Explanation / Answer

Departmental contributions are as below:

Heads

Department “A”

Department “E”

Sales

$112,500

$105,500

Less: Cost of goods sold

$55,675

$66,750

Gross profit

$56,825

$38,750

Less: Operating expenses:

Depreciation

$10,150

$9,000

Salaries

$17,300

$13,500

Supplies

$2,030

$1,700

Net income

$27,345

$14,550

Advertising, rent, and utilities are indirect expenses. These should not be considered for the calculation, since these are unavoidable either the department elimination or continuation.

Department “E” should not be eliminated, since it has positive contribution, $14,550, as net income.

This department is still profitable and should be continued.