I am a bit lost on this problem. There is a solution posted already HOWEVER the solution does not match the check figures my instructor provided. Check figure for Contribution to Common under Department A is 75,000 per my instructor. The solution already posted has a very different number. Departmental Contribution to Common Expenses Certain operating information is shown below for Palmer Department Store: Department A Department B All Other Departments Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000 $900,000 $2,100,000 Traceable expenses . . . . . . . . . . . . . . . . . . . . . . . 105,000 165,000 600,000 Common expenses. . . . . . . . . . . . . . . . . . . . . . . . 90,000 120,000 300,000 Gross profit percentage . . . . . . . . . . . . . . . . . . . . 30% 40% 50% The managers are disappointed with the operating results of department A.They do not believe that competition will permit raising prices; however, they believe that spending $21,000 more for promoting this department’s products will increase the physical volume of products sold by 20%. An alternative is to discontinue department A and use the space to expand department B. It is believed that department B’s physical volume of products sold can thus be increased 37.5%.Special sales personnel are needed, however, and department B’s traceable expenses would increase by $90,000. Neither alternative would appreciably affect the total common departmental expense. Required a. Calculate the contribution now being made to common expenses by department A, by department B, and by the combination of other departments. b. Which of the two alternatives should management choose: increase promotional outlays for department A or discontinue department A and expand department B? Support your answer with calculations.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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I am a bit lost on this problem. There is a solution posted already HOWEVER the solution does not match the check figures my instructor provided. Check figure for Contribution to Common under Department A is 75,000 per my instructor. The solution already posted has a very different number.

Departmental Contribution to Common Expenses Certain operating information is shown below for Palmer Department Store:

Department A Department B

All Other

Departments

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000 $900,000 $2,100,000

Traceable expenses . . . . . . . . . . . . . . . . . . . . . . . 105,000 165,000 600,000

Common expenses. . . . . . . . . . . . . . . . . . . . . . . . 90,000 120,000 300,000

Gross profit percentage . . . . . . . . . . . . . . . . . . . . 30% 40% 50%

The managers are disappointed with the operating results of department A.They do not believe

that competition will permit raising prices; however, they believe that spending $21,000 more for promoting this department’s products will increase the physical volume of products sold by 20%.

An alternative is to discontinue department A and use the space to expand department B. It is believed that department B’s physical volume of products sold can thus be increased 37.5%.Special sales

personnel are needed, however, and department B’s traceable expenses would increase by $90,000.

Neither alternative would appreciably affect the total common departmental expense.

Required

a. Calculate the contribution now being made to common expenses by department A, by department B, and by the combination of other departments.

b. Which of the two alternatives should management choose: increase promotional outlays for department A or discontinue department A and expand department B? Support your answer with

calculations.

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