Acctg 1B Chapter 24 Practice Problem #1

Peaceful Existence, Inc. has three departments. The information related to the three departments is depicted in Table #1 below:

Description	Department 1	Department 2	Department 3
Sales	$4,000,000	$3,500,000	$2,500,000
Cost of Goods Sold	25% of Sales	75% of Sales	25% of Sales
Operating Expenses
Office Salaries	$975,000	$780,000	$500,000
Office Supplies	125,000	95,500	58,900
Store Maintenance	92,650	55,000	32,680
Insurance	15,040	9,800	7,950
Utilities	3,200	1,500	2,000

The company also incurred the following Service Department Charges:

Service Department Expenses		Allocation
Advertising Expenses	$375,000	Sales Revenue
Administrative Expenses	$535,000	Number of Employees
Maintenance Expenses	$285,000	Square Footage

Departments	# of Employees	Square Footage
Department 1	765	86,625
Department 2	585	25,575
Department 3	450	52,800

Directions: Use the above information to prepare a departmental income statement for the company. Show all calculations with words and numbers. The company is considering eliminating department 2. What are the two most important reasons why the company should not eliminate department 2?