Cost allocation: Cost allocation is a system to distribute the costs to the activities or departments. The allocation is done on the basis of some allocation base. Departmental Contribution to overhead: Departmental Contribution to overheads is the balance of sales after subtracting all the direct expenses. In other words, it is the amount available to bear overheads or indirect costs. The formula to calculate the Departmental Contribution to overheads is as follows: D e p a r t m e n t a l C o n t r i b u t i o n t o o v e r h e a d s = S a l e s − C o s t o f g o o d s s o l d – T o t a l D i r e c t e x p e n s e s Departmental Net income: Departmental Net income is the balance of Departmental Contribution to overheads after subtracting all the indirect expenses or overheads. The formula to calculate Departmental Net income is as follows: D e p a r t m e n t a l N e t i n c o m e = D e p a r t m e n t a l C o n t r i b u t i o n t o o v e r h e a d s – T o t a l I n d i r e c t E x p e n s e s o r o v e r e h a d s Requirement-1: To calculate: The Contribution to overhead and net income for each department

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Chapter 24, Problem 4BPSB

To determine

Introduction:

Cost allocation: Cost allocation is a system to distribute the costs to the activities or departments. The allocation is done on the basis of some allocation base.

Departmental Contribution to overhead: Departmental Contribution to overheads is the balance of sales after subtracting all the direct expenses. In other words, it is the amount available to bear overheads or indirect costs. The formula to calculate the Departmental Contribution to overheads is as follows:

$D e p a r t m e n t a l C o n t r i b u t i o n t o o v e r h e a d s = S a l e s - C o s t o f g o o d s s o l d - T o t a l D i r e c t e x p e n s e s$

Departmental Net income: Departmental Net income is the balance of Departmental Contribution to overheads after subtracting all the indirect expenses or overheads. The formula to calculate Departmental Net income is as follows:

$\begin{array}{l} D e p a r t m e n t a l N e t i n c o m e = \\ D e p a r t m e n t a l C o n t r i b u t i o n t o o v e r h e a d s - T o t a l I n d i r e c t E x p e n s e s o r o v e r e h a d s \end{array}$

Requirement-1:

To calculate: The Contribution to overhead and net income for each department

To determine

Requirement-2:

To determine: if the Guitar department should be eliminated

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