The following cost data pertain to the operations of Montgomery Department Stores, Inc., for the month of July. Corporate legal office salaries $ 69,000 Apparel Department cost of sales—Evendale Store $ 117,900 Corporate headquarters building lease $ 63,900 Store manager’s salary—Evendale Store $ 18,000 Apparel Department sales commission—Evendale Store $ 10,000 Store utilities—Evendale Store $ 13,400 Apparel Department manager’s salary—Evendale Store $ 12,800 Central warehouse lease cost $ 23,800 Janitorial costs—Evendale Store $ 11,200 The Evendale Store is just one of many stores owned and operated by the company. The Apparel Department is one of many departments at the Evendale Store. The central warehouse serves all of the company’s stores. Required: 1. What is the total amount of the costs listed above that are direct costs of the Apparel Department? 2. What is the total amount of the costs listed above that are direct costs of the Evendale Store? 3. What is the total amount of the Apparel Department’s direct costs that are also variable costs with respect to total departmental sales?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
The following cost data pertain to the operations of Montgomery Department Stores, Inc., for the month of July.
| Corporate legal office salaries | $ | 69,000 |
| Apparel Department cost of sales—Evendale Store | $ | 117,900 |
| Corporate headquarters building lease | $ | 63,900 |
| Store manager’s salary—Evendale Store | $ | 18,000 |
| Apparel Department sales commission—Evendale Store | $ | 10,000 |
| Store utilities—Evendale Store | $ | 13,400 |
| Apparel Department manager’s salary—Evendale Store | $ | 12,800 |
| Central warehouse lease cost | $ | 23,800 |
| Janitorial costs—Evendale Store | $ | 11,200 |
The Evendale Store is just one of many stores owned and operated by the company. The Apparel Department is one of many departments at the Evendale Store. The central warehouse serves all of the company’s stores.
Required:
1. What is the total amount of the costs listed above that are direct costs of the Apparel Department?
2. What is the total amount of the costs listed above that are direct costs of the Evendale Store?
3. What is the total amount of the Apparel Department’s direct costs that are also variable costs with respect to total departmental sales?
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