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Department A600,000 $Department BAll other deptsTotalSalesGross profit percentageGross profit$900,000 $2,100,00030%40%50%180,000 $360,000 $1,050,000 $1,590,000Traceable expenses165,000105,000S600,000870,000735,000 $1,500,000 $Contribution to common expenses495,000 $2,730,000Continue Department A and increase volume by additional promotionIncrease in gross profitIncrease in promotional expensesPartial income statementDepartment AAll other deptsDepartment BTotalGross profitTraceable expensesNet benefit (increase in contribution to common expenses)ContributionDiscontinue Department A and increase Department B volumePartial income statementAll other deptsIncrease in gross profitIncrease in traceable expensesTotalDepartment BGross profitTraceable expensesLoss of contribution to common expensesContributionNet detriment (decrease in contribution to common expenses)Analysis:

Question

I filled in some of the work for part "a" and was wondering if somebody could check to make sure it's correct.  I also don't know what to put in part "b" so assistance there is needed too. See attached spreadsheet for what I mean. Thanks!

 

Certain operating information is shown below for Palmer Department Store:

  Department A Department B All Other Departments
Sales $600,000 $900,000 $2,100,000
Traceable expenses 105,000 165,000 600,000
Common expenses 90,000 120,000 300,000
Gross profit percentage 30% 40% 50%

The managers are disappointed with the operating results of department A.  They do not believe that competition will permit raising prices; however, they believe that spending $21,000 more for promoting this department's products will increase the physical volume of products sold by 20%.

An alternative is to discontinue department A and use the space to expand department B.  It is believed that department B's physical volume of products sold can thus be increased 37.5%.  Special sales personnel are needed, however, and department B's traceable expenses would increase by $90,000.  Neither alternative would appreciably affect the total common department expense.

 

Required

a) Calculate the contribution now being made to common expenses by department A, by department B, and by the combination of other departments.

b) Which of the two alternatives should management choose: increase promotional outlays for department A or discontinue department A and expand department B?  Support your answer with calculations.

Department A
600,000 $
Department B
All other depts
Total
Sales
Gross profit percentage
Gross profit
$
900,000 $
2,100,000
30%
40%
50%
180,000 $
360,000 $
1,050,000 $
1,590,000
Traceable expenses
165,000
105,000
S
600,000
870,000
735,000 $
1,500,000 $
Contribution to common expenses
495,000 $
2,730,000
Continue Department A and increase volume by additional promotion
Increase in gross profit
Increase in promotional expenses
Partial income statement
Department A
All other depts
Department B
Total
Gross profit
Traceable expenses
Net benefit (increase in contribution to common expenses)
Contribution
Discontinue Department A and increase Department B volume
Partial income statement
All other depts
Increase in gross profit
Increase in traceable expenses
Total
Department B
Gross profit
Traceable expenses
Loss of contribution to common expenses
Contribution
Net detriment (decrease in contribution to common expenses)
Analysis:
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Department A 600,000 $ Department B All other depts Total Sales Gross profit percentage Gross profit $ 900,000 $ 2,100,000 30% 40% 50% 180,000 $ 360,000 $ 1,050,000 $ 1,590,000 Traceable expenses 165,000 105,000 S 600,000 870,000 735,000 $ 1,500,000 $ Contribution to common expenses 495,000 $ 2,730,000 Continue Department A and increase volume by additional promotion Increase in gross profit Increase in promotional expenses Partial income statement Department A All other depts Department B Total Gross profit Traceable expenses Net benefit (increase in contribution to common expenses) Contribution Discontinue Department A and increase Department B volume Partial income statement All other depts Increase in gross profit Increase in traceable expenses Total Department B Gross profit Traceable expenses Loss of contribution to common expenses Contribution Net detriment (decrease in contribution to common expenses) Analysis:

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check_circleAnswer
Step 1

The required table is pre...

A
G
Department
All other
Particulars
Department A
Total
B
900000
0.4
2c3
|165000
-C2-CS
Departments
2100000
0.5
|D2D3
600000
-D2-DS
600000
0.3
-R2 R3
105000
-B2-BS
2 Sales
3 Gross profit perceatage
4 Giross profit
s Traceable Expenses
6 Coutribution to conmuon espeuses
-SUM(R4:D4)
-SUM(BS DS)
-SUM(B6:D6)
7
Coatinne department A and increase vol
Partial income statement
8
All other
Department B Departments
Department A
Total
-( 20% 600000) e30 %
21000
9 Lucrease in goss profit
10 lucrease in prouotioual expese
Net Benefit (increase in contribtion to
11 coumou expenses)
B4+R9
-SUM(GI0: 110)
Gross profit
C4
-D4
Traceable expenses
Coutribution
-B9- B10
-B5 B10
-(B2+ (20 % B2)) -G11-C2- H11
- SUM(G11 : I11)
-SUM(G12:112)
-CS
-DS
12
-D2-111
13 Discontinme Departmeut A and increase
-(37.59% *900000) 40%
14 Increase in gross profit
15 Incrense in Traceable Expenses
90000
Partial incoue statemeut
All other
Department B Departments
Total
-B14-B15
16
Loss of Contribution to common
Gross profit
495000
-C4+B14
-SUM(H17:117)
17 expense
Net Benefit (deercase in coatribution to
18 common expenses)
-D1
Traceable expenses
B16 B17
- SUM(HI8:118 )
-SUM(H19:119)
- C5- B15
|-(B14+C2)-H18-D2-118
-DS
Coutribution
19
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A G Department All other Particulars Department A Total B 900000 0.4 2c3 |165000 -C2-CS Departments 2100000 0.5 |D2D3 600000 -D2-DS 600000 0.3 -R2 R3 105000 -B2-BS 2 Sales 3 Gross profit perceatage 4 Giross profit s Traceable Expenses 6 Coutribution to conmuon espeuses -SUM(R4:D4) -SUM(BS DS) -SUM(B6:D6) 7 Coatinne department A and increase vol Partial income statement 8 All other Department B Departments Department A Total -( 20% 600000) e30 % 21000 9 Lucrease in goss profit 10 lucrease in prouotioual expese Net Benefit (increase in contribtion to 11 coumou expenses) B4+R9 -SUM(GI0: 110) Gross profit C4 -D4 Traceable expenses Coutribution -B9- B10 -B5 B10 -(B2+ (20 % B2)) -G11-C2- H11 - SUM(G11 : I11) -SUM(G12:112) -CS -DS 12 -D2-111 13 Discontinme Departmeut A and increase -(37.59% *900000) 40% 14 Increase in gross profit 15 Incrense in Traceable Expenses 90000 Partial incoue statemeut All other Department B Departments Total -B14-B15 16 Loss of Contribution to common Gross profit 495000 -C4+B14 -SUM(H17:117) 17 expense Net Benefit (deercase in coatribution to 18 common expenses) -D1 Traceable expenses B16 B17 - SUM(HI8:118 ) -SUM(H19:119) - C5- B15 |-(B14+C2)-H18-D2-118 -DS Coutribution 19

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