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Departmental contribution to income and Analysis of possible elimination of a department
Subject
Business Finance
Question Description
Q 1)
Vortex Company operates a retail store with two departments. Information about those departments Problem 9-4A follows.
Departmental
contribution to income
P3
Department A Department B
Sales . . . . . . . . . . . . . . . . . . . . . $800,000 $450,000
Cost of goods sold . . . . . . . . . 497,000 291,000
Direct expenses
Salaries . . . . . . . . . . . . . . . . . 125,000 88,000
Insurance . . . . . . . . . . . . . . . 20,000 10,000
Utilities . . . . . . . . . . . . . . . . . 24,000 14,000
Depreciation . . . . . . . . . . . . 21,000 12,000
Maintenance . . . . . . . . . . . . . 7,000 5,000
Chapter 9 Performance Measurement and Responsibility Accounting 381
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.
The company also incurred the following indirect costs.
Salaries . . . . . . . . . . . . . . . . $36,000
Insurance . . . . . . . . . . . . . . 6,000
Depreciation . . . . . . . . . . . 15,000
Office expenses . . . . . . . . . 50,000
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