Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter 9, Problem 4PSB

1.

To determine

To prepare: Department contribution statement.

1.

Expert Solution
Check Mark

Explanation of Solution

    S. Company
    Department Contribution Statement
    Particulars Video Music
    Sales 370,500 279,500
    Cost of goods sold 320,000 175,000
    Gross profit 50,500 104,500
    Direct expenses
    Salaries expense 35,000 25,000
    Insurance 4,200 3,700
    Utilities 5,000 4,500
    Maintenance 12,000 10,000
    Total direct expenses 56,200 43,200
    Departmental contribution to overhead (5,700) 61,300
    Indirect expenses
    Salaries expenses 16,200 10,800
    Office expenses 2,000 1,200
    Advertisement 8,550 6,450
    Total indirect expenses 26,750 18,450
    Net income(loss) (32,450) 42,850

Hence, video has net loss of $32,450 and music has net income of $42,850.

Working note:

Salary will be allocated to department on the basis of number of the employees,

Salary is $27,000.
Number of employ in video department is 3.
Number of employ in music department is 2.

Compute the percentage of the employees in department of video,

    Percentageofemployees(Video)= Employees(video) Totalemployees = 3 5 ×100 =60%

Compute the percentage of the employees in department of music,

    Percentageofemployees(Music)= Employees(Music) Totalemployees = 2 5 ×100 =40%

Compute salary allocation on the basis of the percentage of the employees of department video,

    Deparmentsalary(Vedio)=Totalsalry×Percentageofemployees =$27,000×60% =$16,200

Compute salary allocation on the basis of the percentage of the employees of department music,

    Deparmentsalary(Music)=Totalsalry×Percentageofemployees =$27,000×40% =$10,800

Allocation of the advertisement expense to the department on the basis of the sale

Given,
Advertisement expense is $15,000.
Sale of the video department is $370,500.
Sale of the Music department is $279,500.

Compute the percentage of the sales in department of music and video,

    Percentageofsales(Video)= Sales(video) Totalsales = 370,500 650,000 ×100 =57%

Percentageofsales(Music)= Sales(Music) Totalsales = 279,500 650,000 ×100 =43%

Compute advertisement expense allocation on the basis of the percentage of the sales of department music and video,

    Deparmentsales(Video)=TotalAdvertisementexpense×Percentageofsales =$15,000×57% =$8,550


Deparmentsales(Music)=TotalAdvertisementexpense×Percentageofsales =$15,000×43% =$6,450

Allocation of the office expense to the department of the video and music,

Given,
Office expense is $3,200.
Video department area is 5000sq. feet.
Music department area is 3000sq. feet.

Compute the percentage of the area used in department of music and video,

    Percentageofarea(Video)= Area(vedio) Totalarea = 5000sq.feet 8000sq.feet ×100 =62.5%

Percentageofarea(Music)= Area(Music) Totalarea = 3000sq.feet 8000sq.feet ×100 =37.5%

Compute office expense allocation on the basis of the percentage of the area used by department of music and video,

    Deparmentofficeexpense(Vedio)=Totalofficeexpense×PercentageofArea =$3,200×62.5% =$2,000


Deparmentofficeexpense(Music)=Totalofficeexpense×PercentageofArea =$3,200×37.5% =$1,100

2.

To determine

Elimination of guitar department.

2.

Expert Solution
Check Mark

Explanation of Solution

  • Form the above information, it can be seen that departmental contribution to overhead is negative in case of video and music
  • Total indirect expense of the video and music are $26,750 and $18,450 a respectively.
  • So, it can be said that video cannot recover its direct cost and it is advisable to eliminate video department.

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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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