The upper half of Exhibit 24.12 e shows a departmental contribution to overhead as part of...

  

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The upper half of Exhibit 24.12 e shows a departmental contribution to overhead as part of an expanded income statement. Departmental contribution to overhead, because it focuses on the direct expenses that are under the profit Page 1050 center manager's control, is often a better way to assess that manager's performance. EXHIBIT 24.12 Departmental Contribution to Overhead A-1 HARDWARE Income Statement Showing Departmental Contribution to Overhead For Year Ended December 31, 2017 Hardware Department Housewares Department Appliances Department Combined Sales $119.,500 S71,700 $47,800 $239,000 Cost of goods sold Gross Read this section if you do not understand the highlighted Direct topic. 73,800 43,800 30,200 147,800 27,900 17,600 91,200 Salaries expense 15,600 7,000 7,800 30,400 Depreciation expense-Equipment 400 100 200 700 Supplies expense Total direct expenses 300 200 100 600 16,300 7.300 8,100 31,700 Departmental contributions to overhead $ 29,400 $ 20,600 $ 9,500 $ 59,500 Indirect expenses Rent expense 10,800 Utilities expense 1,800 Advertising expense 1,000 Insurance expense 1,900 General office department expense 15,300 Purchasing department expense 9.700 Total indirect expenses 40,500 Operating income $ 19,000 Exhibit 24.12 e shows a $9.500 positive contribution to overhead for the appliances department. If this department were eliminated, the company would be worse off. Further, the appliance department's manager is better evaluated using this $9,500 than on the department's operating loss of $(500). The company also compares each department's contribution to overhead to budgeted amounts to assess each department's performance. Point: Operating income is the same in Exhibits 24.11 9 and 24.12. The method of reporting indirect expenses in Exhibit 24.12 e does not change total income but does identify each operating department's contribution to overhead. concept of "departmental contributions to overhead." Answer the following questions: 1. How is departmental contribution to overhead an effective tool in assessing each department's performance? 2. See Exhibit 24.12 on page 1050 of your textbook. Calculate the departmental contributions margin to overhead for each department. Departmental contribution margin to overhead = departmental contributions to overhead / Sales For example, for the Hardware Department, the departmental contributions margin to overhead would be: $29,400/$119,500 = 24.6% 3. Which department has the highest departmental contributions margin? What does that tell you about the performance of that department relative to the performance of other departments? The upper half of Exhibit 24.12 e shows a departmental contribution to overhead as part of an expanded income statement. Departmental contribution to overhead, because it focuses on the direct expenses that are under the profit Page 1050 center manager's control, is often a better way to assess that manager's performance. EXHIBIT 24.12 Departmental Contribution to Overhead A-1 HARDWARE Income Statement Showing Departmental Contribution to Overhead For Year Ended December 31, 2017 Hardware Department Housewares Department Appliances Department Combined Sales $119.,500 S71,700 $47,800 $239,000 Cost of goods sold Gross Read this section if you do not understand the highlighted Direct topic. 73,800 43,800 30,200 147,800 27,900 17,600 91,200 Salaries expense 15,600 7,000 7,800 30,400 Depreciation expense-Equipment 400 100 200 700 Supplies expense Total direct expenses 300 200 100 600 16,300 7.300 8,100 31,700 Departmental contributions to overhead $ 29,400 $ 20,600 $ 9,500 $ 59,500 Indirect expenses Rent expense 10,800 Utilities expense 1,800 Advertising expense 1,000 Insurance expense 1,900 General office department expense 15,300 Purchasing department expense 9.700 Total indirect expenses 40,500 Operating income $ 19,000 Exhibit 24.12 e shows a $9.500 positive contribution to overhead for the appliances department. If this department were eliminated, the company would be worse off. Further, the appliance department's manager is better evaluated using this $9,500 than on the department's operating loss of $(500). The company also compares each department's contribution to overhead to budgeted amounts to assess each department's performance. Point: Operating income is the same in Exhibits 24.11 9 and 24.12. The method of reporting indirect expenses in Exhibit 24.12 e does not change total income but does identify each operating department's contribution to overhead. concept of "departmental contributions to overhead." Answer the following questions: 1. How is departmental contribution to overhead an effective tool in assessing each department's performance? 2. See Exhibit 24.12 on page 1050 of your textbook. Calculate the departmental contributions margin to overhead for each department. Departmental contribution margin to overhead = departmental contributions to overhead / Sales For example, for the Hardware Department, the departmental contributions margin to overhead would be: $29,400/$119,500 = 24.6% 3. Which department has the highest departmental contributions margin? What does that tell you about the performance of that department relative to the performance of other departments?