Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
Question
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Chapter 9, Problem 3PSA
To determine

Department Contribution statement:

Through the department contribution statement a company can decide whether any department should be eliminated or not. To take this decision, Company needs a departmental contribution statement. If department contribution statement figure is negative and income comes positive then company take decision to close that department.

To Identify: Departmental income statement.

Expert Solution & Answer
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Explanation of Solution

    Particulars Amount ($) Amount ($) Amount ($) Amount ($)
    Clock Mirror Painting Combined
    Sales(A) 140,400 59,400 50,000 199,800
    Cost of goods sold(A-C) 68,796 36,828 22,500 128,124
    Gross profit ( C=A×B ) 71,796 22,572 27,500 71,676
    Gross profit margin(B) 51% 38% 55% 47.14%
    Direct expense
    Sales salaries 20,000 7,000 8,000 35,000
    Advertisement expense 1,200 500 800 2,500
    Store supplies used 972 432 500 1,904
    Deprecation-Equipment 1,500 300 200 2,000
    Total direct expense 23,672 8,232 9,500 41,404
    Allocated expense
    Rent expense 5,616 2,835 2,349 10,800
    Utilities expense 2,080 1,050 870 4,000
    Office expense 12,365.09 5,231.39 4,404 22,000
    Total allocated expense 20,061 9,116 4,403.52 36,800
    Total expense(D) 43,733 17,348 17,123 78,204
    Net Income ( E=CD ) 27,871 5,224 10,377 43,204

Working notes:

Given,
Clock department sale is 130,000.
Mirror department sale is 55,000.
Painting department sale is 50,000.
Increase in the sale is 8%.

Calculation of increase in sales of clock department,

    Totalclock departmentsales=Clock departmentsale×%increasedinsales =$130,000× 108 100 =$140,400

Calculation of increase in sales of mirror department,

    Totalmirror departmentsales=Mirror departmentsale×%increasedinsales =$55,000× 108 100 =$59,400

Formula to calculate combined increased in sales,

    Total combinedsales= Combinedsale×%increasedinsales =$185,000× 108 100 =$128,124

Given,
Clock department sale is 130,000.
Mirror department sale is 55,000.
Painting department sale is 50,000.
Gross profit margin of clock department is $66,300.
Gross profit margin of Mirror department is $20,900.
Gross profit margin of painting department is 55%.

Calculation of gross profit margin of clock department,

    Grossprofitmargin= Grossprofit Sale = $66,300 $130,000 =51%

Calculation of gross profit margin of mirror department,

    Grossprofitmargin= Grossprofit Sale = $20,900 $55,000 =38%

Calculation of gross profit margin of combined sale,

    Grossprofitmargin= Grossprofit Sale = $87,200 $185,000 =47.14%

Given,
New sale of clock department is $140,400.
New sale of mirror department is $59,400.
New sale of painting department is $50,000.
New sale of painting department is $50,000.
New combined sale is $199,800.
Gross profit margin of clock department is 51%.
Gross profit margin of mirror department is 38%.
Gross profit margin of painting department is 55%.
Gross profit margin of combined sale is 47.14%.

Calculation of gross profit of clock department,

    Grossprofit=Grossprofitmargin×Sale =$140,400×51% =$71,604

Calculation of gross profit of mirror department,

    Grossprofit=Grossprofitmargin×Sale =$59,400×38% =$22,572

Calculation of gross profit of painting department,

    Grossprofit=Grossprofitmargin×Sale =$50,000×55% =$27,500

Calculation of gross profit of combined sale,

    Grossprofit=Grossprofitmargin×Sale =$199,800×47.14% =$94,185.72

Given,
New sale of clock department is $140,400.
New sale of mirror department is $59,400.
New sale of painting department is $50,000.
Gross profit of clock department is $71,604.
Gross profit of mirror department is $22,572.
Gross profit of painting department is $27,500.
Gross profit of combined sale is $94,185.72.

Calculation of cost of goods sold of clock department,

    Costofgoodssold=SaleGrossprofit =$140,400$71,604 =$68,796

Calculation of cost of goods sold of mirror department,

    Costofgoodssold=SaleGrossprofit =$59,400$22,572 =$36,828

Calculation of cost of goods sold of painting department,

    Costofgoodssold=SaleGrossprofit =$50,000$27,500 =$22,500

Calculation of cost of goods sold of combined sale,

    Costofgoodssold=SaleGrossprofit =$199,800$94,185.72 =$105,614.28

Given,
Store supplies used by clock department are $900.
Store supplies used by mirror department are $400.
Store supplies used by painting department are $500.

Sales increased of the both department is 8%.

Calculation of store supplies of the clock department,

    Storesupliesused=Storesupplies×%increasedinthesale =$900× 108 100 =$972

Calculation of store supplies of the mirror department,

    Storesupliesused=Storesupplies×%increasedinthesale =$400× 108 100 =$432

Calculation of combined store supplies of the department,

    Combinedsupplies=( Clockdeparmentusedstoresupplies +Mirrordeparmentusedstoresupplies +Paintingdeparmentusedstoresupplies ) =$972+$432+$500 =$1,904

Given,
Rent expense of the clock department is $7,020.
Rent expense of the mirror department is $3,780.
Painting department used the area of the clock department is one-fifth.
Painting department used the area of the mirror department is one-fourth.

Calculation of new rant expense of the clock department,

    Newrentexpense=Rentexpense× 4 5 usedbythedeparment =$7,020× 4 5 =$5,616

Calculation of the new rant expense of the mirror department,

    Newrentexpense=Rentexpense× 3 4 usedbythedeparment =$3,780× 3 4 =$2,835

Calculation of new rant expense of the painting department,

    Rentexpense=[ ( Rentexpenseofclockdeparment 5 ) +( Rentexpenseofmirrordeparment 4 ) ] = $7,020 5 + $3,780 4 =$1,404+$945 =$2,349

Calculation of combines rent expense,

    Combinedexpense=( Rentexpenseofclockdeparment +Rentexpenseofmirrordeparment +Rentexpenseofpaintingdeparment ) =$5,616+$2,835+$2,349 =$10,800

Given,
Utilities expense of the clock department is $2,600.
Utilities expense of the mirror department is $1,400.
Painting department used the area of the clock department is one-fifth.
Painting department used the area of the mirror department is one-fourth.

Calculation of new utilities expense of the clock department,

    NewUtilitiesexpense=Utilitiesexpense× 4 5 usedbythedeparment =$2,600× 4 5 =$2,080

Calculation of new utilities expense of the mirror department,

    NewUtilitiesexpense=Utilitiesexpense× 3 4 usedbythedeparment =$1,400× 3 4 =$1,050

Calculation of new utilities expense of the painting department,

    Utilitiesexpense=[ ( Utilitiesexpenseofclockdeparment 5 ) +( Utilitiesexpenseofmirrordeparment 4 ) ] = $2,600 5 + $3,780 4 =$520+$945 =$1,465

Calculation of office expense of the clock department,

    NewOfficeexpense= Sales Combinedsale ×Combinedexpense = $140,400 $249,800 ×$22,000 =$12,365

Calculation of office expense of the mirror department,

    NewOfficeexpense= Sales Combinedsale ×Combinedexpense = $59,400 $249,800 ×$22,000 =$5,231.39

Calculation of office expense of the painting department,

    Officeexpense=( TotalofficeexpenseClockdepartmentexpense Mirrordepartmentexpense ) =$22,000$12,365.09$5,231.39 =$4,404

Given,
Total expense of the clock department is $43,733.
Total expense of the mirror department is $17,348.
Total expense of the painting department is $17,123.
Gross profit of clock department is $71,604.
Gross profit of mirror department is $22,572.
Gross profit of painting department is $27,500.

Calculation of net income of the clock department,

    Netincome=GrossprofitTotalexpense =$71,604$43,733 =$27,871

Calculation of net income of the mirror department,

    Netincome=GrossprofitTotalexpense =$36,828$17,348 =$5,224

Calculation of net income of the painting department,

    Netincome=GrossprofitTotalexpense =$22,500$17,123 =$10,377

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Chapter 9 Solutions

Managerial Accounting

Ch. 9 - Prob. 6DQCh. 9 - Prob. 7DQCh. 9 - Prob. 8DQCh. 9 - Prob. 9DQCh. 9 - Prob. 10DQCh. 9 - Prob. 11DQCh. 9 - Prob. 12DQCh. 9 - Prob. 13DQCh. 9 - Prob. 14DQCh. 9 - Prob. 15DQCh. 9 - Prob. 16DQCh. 9 - Prob. 17DQCh. 9 - Prob. 18DQCh. 9 - Allocation and measurement terms C1 In each blank...Ch. 9 - Basis for cost allocation C1 In each blank next...Ch. 9 - Prob. 3QSCh. 9 - Prob. 4QSCh. 9 - Prob. 5QSCh. 9 - Prob. 6QSCh. 9 - Prob. 7QSCh. 9 - Prob. 8QSCh. 9 - Computing return on investment A1 Compute return...Ch. 9 - Computing residual income A1 Refer to the...Ch. 9 - Prob. 11QSCh. 9 - Computing profit margin and investment turnover A2...Ch. 9 - Performance measures__balanced scorecard A3...Ch. 9 - Prob. 14QSCh. 9 - Prob. 15QSCh. 9 - Prob. 16QSCh. 9 - Prob. 17QSCh. 9 - Prob. 18QSCh. 9 - Prob. 19QSCh. 9 - Prob. 1ECh. 9 - Prob. 2ECh. 9 - Prob. 3ECh. 9 - Prob. 4ECh. 9 - Prob. 5ECh. 9 - Prob. 6ECh. 9 - Prob. 7ECh. 9 - Prob. 8ECh. 9 - Prob. 9ECh. 9 - Prob. 10ECh. 9 - Prob. 11ECh. 9 - Prob. 12ECh. 9 - Prob. 13ECh. 9 - Prob. 14ECh. 9 - Prob. 15ECh. 9 - Exercise 22-16 Performance measures-balanced...Ch. 9 - Prob. 17ECh. 9 - Prob. 18ECh. 9 - Prob. 19ECh. 9 - Prob. 20ECh. 9 - Prob. 21ECh. 9 - Prob. 22ECh. 9 - Prob. 23ECh. 9 - Prob. 1PSACh. 9 - Prob. 2PSACh. 9 - Prob. 3PSACh. 9 - Prob. 4PSACh. 9 - Prob. 5PSACh. 9 - Prob. 1PSBCh. 9 - Prob. 2PSBCh. 9 - Prob. 3PSBCh. 9 - Prob. 4PSBCh. 9 - Prob. 5PSBCh. 9 - Santana Rey’s two departments, computer consulting...Ch. 9 - Prob. 1AACh. 9 - Prob. 2AACh. 9 - Prob. 3AACh. 9 - Prob. 1BTNCh. 9 - Prob. 2BTNCh. 9 - Prob. 3BTNCh. 9 - Prob. 4BTNCh. 9 - Prob. 5BTNCh. 9 - Prob. 6BTN
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