Managerial Accounting
Managerial Accounting
6th Edition
ISBN: 9781259726972
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter 9, Problem 4PSA

1

To determine

Department contribution statement

1

Expert Solution
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Explanation of Solution

    V Company
    Department Contribution statement
    Particulars Department A Department B
    Sales 800,000 450,000
    Cost of goods sold 497,000 291,000
    Gross profit 303,000 159,000
    Direct expenses
    Salaries expense 125,000 88,000
    Depreciation expenses 21,000 12,000
    Insurance 20,000 10,000
    Utilities 24,000 14,000
    Maintenance 7,000 5,000
    Total direct expenses 197,000 129,000
    Departmental contribution to overhead 106,000 30,000
    Indirect expenses
    Salaries expenses 23,040 12,960
    Office expenses 30,000 20,000
    Insurance expense 4,200 1,800
    Depreciation expenses 4,200 1,800
    Depreciation 10,500 4,500
    Total indirect expenses 67,740 39,260
    Net income(loss) 38,260 (9,260)

Hence, department A has net income of $38,260 and department B has net loss of $9,260.

Working notes:

Given,
Department A sale is $800,000.
Department B sale is $450,000.

Calculate the total sale of department A and B,

    Totalsale=DepartmentA+DepartmentB =$800,000+$450,000 =$1,250,000

Compute the percentage of sales of Department A,

    Percentageofsale= DeparmentAsale Totalsale ×100 = $800,000 1,250,000 ×100 =64%

Compute the percentage of sales of Department B,

    Percentageofsale= DeparmentBsale Totalsale ×100 = $450,000 1,250,000 ×100 =36%

Allocation of salary on the basis of sale

Given,
Salary is 36,000.
Percentage of A department sale is 64%.
Percentage of B department sale is 36%.

Computation of salary of A department,

    DeparmentAsalary=Percentageofsale×Totalsalaries = 64 100 ×$36,000 =$23,040

Computation of salary of B department,

    DeparmentBsalary=Percentageofsale×Totalsalaries = 36 100 ×$36,000 =$12,960

Allocation of insurance on the basis of square feet,

Given,
Department A square feet is $28,000.
Department B square feet are $12,000.

Calculate the total square feet of department A and B,

    Totalsquarefeet=DepartmentA+DepartmentB =$28,000+$12,000 =$40,000

Compute the percentage of square feet of Department A,

    Percentageofsquarefeet= DeparmentAsquarefeet Totalsquarefeet ×100 = $28,000 $40,000 ×100 =70%

Compute the percentage of square feet of Department B,

    Percentageofsquarefeet= DeparmentBsquarefeet Totalsquarefeet ×100 = $12,000 $40,000 ×100 =30%

Given,
Insurance is $6,000.
Department A square feet is 70%.
Department B square feet are 30%.

Calculate the amount of the insurance on the basis of square feet,

    DepartmentA=Insurance×%ofsquarefeet = 70 100 ×$6,000 =$4,200


DepartmentB=Insurance×%ofsquarefeet = 30 100 ×$6,000 =$1,800

Hence, amount of the insurance on the basis of square feet of department A and B are $4,200 and $1,800.

Allocation of the depreciation on the basis of square feet,

Given,
Department A square feet is $28,000.
Department B square feet are $12,000.

Calculate the total square feet of department A and B,

    Totalsquarefeet=DepartmentA+DepartmentB =$28,000+$12,000 =$40,000

Compute the percentage of square feet of Department A,

    Percentageofsquarefeet= DeparmentAsquarefeet Totalsquarefeet ×100 = $28,000 $40,000 ×100 =70%

Compute the percentage of square feet of Department B,

    Percentageofsquarefeet= DeparmentBsquarefeet Totalsquarefeet ×100 = $12,000 $40,000 ×100 =30%

Given,
Depreciation amount is $15,000.
Department A square feet is 70%.
Department B square feet are 30%.

Formula to calculate the amount of the insurance,

    DepartmentA=Depreciation×%ofsquarefeet = 70 100 ×$15,000 =$10,500


DepartmentB=Depreciation×%ofsquarefeet = 30 100 ×$15,000 =$4,500

Hence, allocation of the depreciation expense on the basis of the square feet of department A and B are $10,500 and $4,500.
Allocation of the office expenses on the basis of the number of the employees allocated to the department.
Given,
Number of employees in department A is 75.
Number of employees in department B is 50.

Calculate the total number of employees in department A and B,

    Totalnumberofemployees=DepartmentA+DepartmentB =75Employees+50Employes =125Employees

Compute the percentage of employees in Department A,

    Percentageofemployees= DeparmentAemployees Totalemployees ×100 = 75 125 ×100 =60%

Compute the percentage of employees in Department B,

    Percentageofemployees= DeparmentBemployees Totalemployees ×100 = 50 125 ×100 =40%

Given,
Office expense amount is $50,000.
Percentage of the employees in the department A is 60%
Percentage of the employees in the department B is 40%

Calculate the amount of office expenses,

    DepartmentA=Officeexpenses×%ofemployees = 60 100 ×$50,000 =$30,000


DepartmentA=Officeexpenses×%ofemployees = 40 100 ×$50,000 =$20,000

Hence, Office expense of the department A and b are $30,000 and $20,000.

2.

To determine

Elimination of department B

2.

Expert Solution
Check Mark

Explanation of Solution

Here, it can be seen that total Indirect expenses of the department A is $67,740 and department B is $39,260. Net income of the department A and B are $38,260 and $9,260 respectively. Contribution of overhead at department A and B are positive with $106,000 and $30,000 respectively.
From the above data it can be said that department B comes to loss due to the indirect cost. So, it will be better to not eliminate the department B

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Chapter 9 Solutions

Managerial Accounting

Ch. 9 - Prob. 6DQCh. 9 - Prob. 7DQCh. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQCh. 9 - Prob. 11DQCh. 9 - Prob. 12DQCh. 9 - Prob. 13DQCh. 9 - Prob. 14DQCh. 9 - Prob. 15DQCh. 9 - Prob. 16DQCh. 9 - Prob. 17DQCh. 9 - Prob. 18DQCh. 9 - Allocation and measurement terms C1 In each blank...Ch. 9 - Basis for cost allocation C1 In each blank next...Ch. 9 - Prob. 3QSCh. 9 - Prob. 4QSCh. 9 - Prob. 5QSCh. 9 - Prob. 6QSCh. 9 - Prob. 7QSCh. 9 - Prob. 8QSCh. 9 - Computing return on investment A1 Compute return...Ch. 9 - Computing residual income A1 Refer to the...Ch. 9 - Prob. 11QSCh. 9 - Computing profit margin and investment turnover A2...Ch. 9 - Performance measures__balanced scorecard A3...Ch. 9 - Prob. 14QSCh. 9 - Prob. 15QSCh. 9 - Prob. 16QSCh. 9 - Prob. 17QSCh. 9 - Prob. 18QSCh. 9 - Prob. 19QSCh. 9 - Prob. 1ECh. 9 - Prob. 2ECh. 9 - Prob. 3ECh. 9 - Prob. 4ECh. 9 - Prob. 5ECh. 9 - Prob. 6ECh. 9 - Prob. 7ECh. 9 - Prob. 8ECh. 9 - Prob. 9ECh. 9 - Prob. 10ECh. 9 - Prob. 11ECh. 9 - Prob. 12ECh. 9 - Prob. 13ECh. 9 - Prob. 14ECh. 9 - Prob. 15ECh. 9 - Exercise 22-16 Performance measures-balanced...Ch. 9 - Prob. 17ECh. 9 - Prob. 18ECh. 9 - Prob. 19ECh. 9 - Prob. 20ECh. 9 - Prob. 21ECh. 9 - Prob. 22ECh. 9 - Prob. 23ECh. 9 - Prob. 1PSACh. 9 - Prob. 2PSACh. 9 - Prob. 3PSACh. 9 - Prob. 4PSACh. 9 - Prob. 5PSACh. 9 - Prob. 1PSBCh. 9 - Prob. 2PSBCh. 9 - Prob. 3PSBCh. 9 - Prob. 4PSBCh. 9 - Prob. 5PSBCh. 9 - Santana Rey’s two departments, computer consulting...Ch. 9 - Prob. 1AACh. 9 - Prob. 2AACh. 9 - Prob. 3AACh. 9 - Prob. 1BTNCh. 9 - Prob. 2BTNCh. 9 - Prob. 3BTNCh. 9 - Prob. 4BTNCh. 9 - Prob. 5BTNCh. 9 - Prob. 6BTN
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