Vortex Company operates a retail store with two departments. Information about those departments follows.

	Department A		Department B
Sales	$846,800		$613,200
Cost of goods sold	508,080		441,504
Direct expenses
Salaries	132,000		95,000
Insurance	16,000		10,000
Utilities	24,000		14,000
Depreciation	28,000		19,000
Maintenance	8,000		6,000

The company also incurred the following indirect costs.

Salaries	$30,000
Insurance	8,000
Depreciation	18,000
Office expenses	44,000

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

Department	Square footage	Number of employees
A	36,000	75
B	12,000	50

Required

1.

For each department, determine the departmental contribution to overhead and the departmental net income.

Vortex Company
Departmental Income Statements
	Dept. A	Dept. B
Sales
Cost of goods sold
Gross margin
Direct expenses
Salaries
Insurance
Utilities
Depreciation
Maintenance
Total direct expenses
Departmental contribution to overhead
Allocated indirect expenses
Salaries
Insurance
Depreciation
Office expenses
Total allocated indirect expenses
Departmental net income

2.

Based on Departmental contribution to overhead, should Department B be eliminated?

	Yes
	No

Answer rating: 100% (QA)

1 Calculate departmental net income Allocation of indirect cost 2 Indirect costs Salaries Based on s... View the full answer