Chapter 9, Problem 4PSB

Sadar Company operates a store with two departments: videos and music. Information about those departments follows.

	Videos Department	Music Department
Sales……………………………..	$370,500	$279,500
Cost of goods sold………..	320,000	175,000
Direct expenses
Salaries……………………	35,000	25,000
Maintenance…………..	12,000	10,000
Utilities…………………...	5,000	4,500
Insurance………………..	4,200	3,700

The company also incurred the following indirect costs.

Advertising…………………………..	$15,000
Salaries………………………………..	27,000
Office expenses…………………..	3,200

Indirect costs are allocated as follows: advertising on the basis of sales; salaries on the basis ofnumber pf employees; and office expenses on the basis of square footage. Additional information about the departments follows.

Department	Square Footage	Numberof employees
Videos……………….	5,000	3
Music…………………	3,000	2

Required

1. For each department, determine the departmental contribution to overhead and the departmental net income.
2. Should the video department be eliminated? Explain.