
Department contribution statement:
Department contribution statement can be defined as a financial statement through which a company can decide whether any department should be eliminated or not. To take this decision, the company needs a departmental contribution statement. If the department contribution statement figure is negative and income is positive, then the company takes the decision to eliminate the particular department causing the loss.
To prepare: The departmental income statement to show how the company’s predicted results of operations for calendar year 2016.

Explanation of Solution
Prepare the departmental income statement to show how the company’s predicted results of operations for calendar year 2016 as shown below.
Particulars | Amount ($) |
Amount ($) |
Amount ($) |
Amount ($) |
---|---|---|---|---|
Movies | Video games | Compact disc | Combined | |
Sales (A) | 648,000 | 216,000 | 300,000 | 1,164,000 |
Cost of goods sold (A - C) | 453,600 | 166,320 | 195,000 | 814,920 |
Gross profit | 194,400 | 49,680 | 105,000 | 349,080 |
Gross profit margin (B) | 30% | 23% | 35% | 30% |
Direct expense | ||||
Sales salaries | 37,000 | 15,000 | 18,000 | 70,000 |
Advertisement expense | 12,500 | 6,000 | 10,000 | 28,500 |
Store supplies used | 4,320 | 1,080 | 2,000 | 7,400 |
Deprecation-Equipment | 4,500 | 3,000 | 1,200 | 8,700 |
Total direct expense | 58,320 | 25,080 | 31,200 | 114,600 |
Allocated expense | ||||
Rent expense | 30,750 | 6,000 | 13,250 | 50,000 |
Utilities expense | 5,535 | 1,080 | 2,385 | 9,000 |
Office expense | 47,320 | 15,773 | 21,907 | 85,000 |
Total allocated expense | 83,605 | 22,853 | 37,542 | 144,000 |
Total expense(D) | 141,925 | 47,933 | 68,742 | 258,600 |
Net Income | 52,475 | 1,747 | 36,258 | 90,480 |
Table – 1
Working notes:
1. Calculate the increased in the sales of movies department.
2. Calculate the increased in the sales of video game department.
3. Calculate the combined increased in sales.
4. Calculate the gross profit margin of movies department.
5. Calculate the gross profit margin of video games department.
6. Calculate the gross profit margin of combined sales.
7. Calculate the gross profit of movies department.
8. Calculate the gross profit of video department.
9. Calculate the gross profit of painting department.
10. Calculate the gross profit of combined sale.
11. Calculate the cost of goods sold of movies department.
12. Calculate the cost of goods sold of video department.
13. Calculate the cost of goods sold of disc department.
14. Calculate the cost of goods sold of combined sale.
15. Calculate the new rent expense of the movies department.
16. Calculate the new rent expense of the video department.
17. Calculate the new rent expense of the disc department.
18. Calculate the combined rent expense.
19. Calculate the new utilities expense of the music department.
20. Calculate the new utilities expense of the video department.
21. Calculate the new utilities expense of the disc department.
22. Calculate the office expense of the music department.
23. Calculate the office expense of the video games department.
24. Calculate the office expense of the disc department.
25. Calculate the net income of the music department.
26. Calculate the net income of the video game department.
27. Calculate the net income of the disc department.
Hence, the departmental income statement to show how the company’s predicted results of operations for calendar year 2016 is prepared as above.
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Chapter 22 Solutions
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