
1.
To prepare: Department contribution statement.
1.

Explanation of Solution
S. Company | ||
Department Contribution Statement | ||
Particulars | Video | Music |
Sales | 370,500 | 279,500 |
Cost of goods sold | 320,000 | 175,000 |
Gross profit | 50,500 | 104,500 |
Direct expenses | ||
Salaries expense | 35,000 | 25,000 |
Insurance | 4,200 | 3,700 |
Utilities | 5,000 | 4,500 |
Maintenance | 12,000 | 10,000 |
Total direct expenses | 56,200 | 43,200 |
Departmental contribution to | (5,700) | 61,300 |
Indirect expenses | ||
Salaries expenses | 16,200 | 10,800 |
Office expenses | 2,000 | 1,200 |
Advertisement | 8,550 | 6,450 |
Total indirect expenses | 26,750 | 18,450 |
Net income(loss) | (32,450) | 42,850 |
Hence, video has net loss of $32,450 and music has net income of $42,850.
Working note:
Salary will be allocated to department on the basis of number of the employees,
Salary is $27,000.
Number of employ in video department is 3.
Number of employ in music department is 2.
Compute the percentage of the employees in department of video,
Compute the percentage of the employees in department of music,
Compute salary allocation on the basis of the percentage of the employees of department video,
Compute salary allocation on the basis of the percentage of the employees of department music,
Allocation of the advertisement expense to the department on the basis of the sale
Given,
Advertisement expense is $15,000.
Sale of the video department is $370,500.
Sale of the Music department is $279,500.
Compute the percentage of the sales in department of music and video,
Compute advertisement expense allocation on the basis of the percentage of the sales of department music and video,
Allocation of the office expense to the department of the video and music,
Given,
Office expense is $3,200.
Video department area is 5000sq. feet.
Music department area is 3000sq. feet.
Compute the percentage of the area used in department of music and video,
Compute office expense allocation on the basis of the percentage of the area used by department of music and video,
2.
Elimination of guitar department.
2.

Explanation of Solution
- Form the above information, it can be seen that departmental contribution to overhead is negative in case of video and music
- Total indirect expense of the video and music are $26,750 and $18,450 a respectively.
- So, it can be said that video cannot recover its direct cost and it is advisable to eliminate video department.
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