Niklos Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of the children's department has three employees. All departments are housed in a single store. In recent years, the children's department has operated at a net loss and is expected to continue to do so. Last year's income statements follow. Men's Department ($) Women's Department ($) Children's Department ($) Sales 700,000 500,000 200,000 Cost of goods sold (272,500) (182,000) (103,875) Gross margin 427,500 318,000 96,125 Department manager's salary (66,000) (55,000) (35,000) Sales commissions (120,200) (89,600) (34,900) Rent on store lease (35,000) (35,000) (35,000) Store utilities (18,000) (18,000) (18,000) Net income (loss) 188,300 120,400 (26,775) Required: Calculate the contribution to profit of the children's department.

Niklos Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of the children's department has three employees. All departments are housed in a single store. In recent years, the children's department has operated at a net loss and is expected to continue to do so. Last year's income statements follow. Men's Department ($) Women's Department ($) Children's Department ($) Sales 700,000 500,000 200,000 Cost of goods sold (272,500) (182,000) (103,875) Gross margin 427,500 318,000 96,125 Department manager's salary (66,000) (55,000) (35,000) Sales commissions (120,200) (89,600) (34,900) Rent on store lease (35,000) (35,000) (35,000) Store utilities (18,000) (18,000) (18,000) Net income (loss) 188,300 120,400 (26,775) Required: Calculate the contribution to profit of the children's department.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 6E: Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of...

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Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of 25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,500 orders per year. The cost of each PC system is 1,100 per year. In addition to the salaries, Elliott spends 27,560 for forms, postage, and other supplies (assuming 26,000 purchase orders are processed). During the year, 25,350 orders were processed. Required: 1. Classify the resources associated with purchasing as (1) flexible or (2) committed. 2. Compute the total activity availability, and break this into activity usage and unused activity. 3. Calculate the total cost of resources supplied (activity cost), and break this into the cost of activity used and the cost of unused activity. 4. (a) Suppose that a large special order will cause an additional 500 purchase orders. What purchasing costs are relevant? By how much will purchasing costs increase if the order is accepted? (b) Suppose that the special order causes 700 additional purchase orders. How will your answer to (a) change?