Vortex Company operates a retail store with two departments. Information about those departments follows.Department A$800,000497,000Department B$450,000291,000SalesCost of goods soldDirect expenses:125,00020,00024,00021,0007,00088,00010,00014,00012,0005,000SalariesInsuranceUtilitiesDepreciationMaintenanceThe company also incurred the following indirect costs.$36,0006,00015,00050,000SalariesInsuranceDepreciationOffice expensesIndirect costs are allocated as follows: salaries on the basis of sales; insurance and depreciation on the basis of square footage; andoffice expenses on the basis of number of employees. Additional information about the departments follows.Number of employeesSquare footage28,00012,000DepartmentA7550Required:1. Determine the departmental contribution to overhead and the departmental net income for department A and Department B.2. Should Department B be eliminated? VORTEX COMPANYDepartmental Contribution StatementsDepartment A Department BDirect expensesTotal direct expensesAllocated indirect expensesTotal indirect expensesOperating income (loss)0 $0.%24

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Answered: Required: 1. Determine the departmental…

Required: 1. Determine the departmental contribution to overhead and the departmental net income for department A and Department B. 2. Should Department B be eliminated?

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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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

Vortex Company operates a retail store with two departments. Information about those departments follows.
Department A
$800,000
497,000
Department B
$450,000
291,000
Sales
Cost of goods sold
Direct expenses:
125,000
20,000
24,000
21,000
7,000
88,000
10,000
14,000
12,000
5,000
Salaries
Insurance
Utilities
Depreciation
Maintenance
The company also incurred the following indirect costs.
$36,000
6,000
15,000
50,000
Salaries
Insurance
Depreciation
Office expenses
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.
Number of employees
Square footage
28,000
12,000
Department
A
75
50
Required:
1. Determine the departmental contribution to overhead and the departmental net income for department A and Department B.
2. Should Department B be eliminated?

VORTEX COMPANY
Departmental Contribution Statements
Department A Department B
Direct expenses
Total direct expenses
Allocated indirect expenses
Total indirect expenses
Operating income (loss)
0 $
0.
%24

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