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:

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:

Image Transcription

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:

Expert Answer

1 Rating

Want to see the step-by-step answer?

See Answer

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

See Answer
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.
Tagged in

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: The following data were taken from the financial statements of Gates Inc. for the current fiscal yea...

A: Prepare comparitive balance sheet for Gates Incorporation: 

Q: Question #50

A: As Cindy is self employed and doing business from her home office, she is entitled to deduct home of...

Q: On May 1, 2017, Buffalo Inc. entered into a contract to deliver one of its specialty mowers to Kicka...

A: Revenue recognition: The revenue recognition requires every business organization to recognize the r...

Q: Parisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of...

A: a) The differential analysis of Company PC as on August 21 for the given alternatives is shown below...

Q: How does block chain make the trail of transactions permanent and who can view the block chained led...

A: Blockchain can be said to be a diary or register where transactions are recorded. Every transaction ...

Q: On July 1, 2022, Blossom Company pays $18,000 to Sunland Company for a 2-year insurance contract. Bo...

A: Record the payment made for insurance for 2 years contract.

Q: how do you find the answer to componets of accounting equations

A: The accounting equation is as followsTotal Assets= Liabilities+ Owner's Equity.So, whenever any tran...

Q: Bond Yields and Rates of Return A 25-year, 8% semiannual coupon bond with a par value of $1,000 may ...

A: Calculation of bond’s yield to maturity, bond’s current yield and gain or loss on bond’s capital: Th...

Q: Hi, I am doing Journal entries for business transactions, but I am confused by one. 9/6/19 Tucker Bo...

A: Prepare journal entry to record the purchase Store, Office, & Boat Equipment: