Peaceful Existence, Inc. has three departments. The information related to the three departments is depicted in Table
Question:
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?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill