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149. Burien, Inc., operates a retail store with two departments, A and B. Its departmental
income statement for the current year follows:
BURIEN, INC.
Departmental Income Statement
For Year Ended December 31
Dept. A Dept. B Combined
Sales $180,000 $200,000 $380,000
Direct expenses 129,900 142,870 272,770
Contributions to overhead $ 50,100 $ 57,130 $107,230
Indirect expenses:
Depreciation—Building 10,000 11,760 21,760
Maintenance 1,600 1,700 3,300
Utilities 6,200 6,320 12,520
Office expenses 1,800 2,000
3,800
Total indirect expenses $ 19,600 $ 21,780 $ 41,380
Net income $ 30,500 $ 35,350 $ 65,850
Burien allocates building depreciation, maintenance, and utilities on the basis of square
footage. Office expenses are allocated on the basis of sales.
Management is considering an expansion to a three-department operation. The proposed
Department C would generate $120,000 in additional sales and have a 17.5% contribution to
overhead. The company owns its building. Opening Department C would redistribute the
square footage to each department as follows: A, 19,040; B, 21,760 sq. ft.; C, 13,600.
Increases in indirect expenses would include: maintenance, $500; utilities, $3,800; and office
expenses, $1,200.
Complete the following departmental income statements, showing projected results of
operations for the three sales departments. (Round amounts to the nearest whole dollar.)
Dept. A Dept. B Dept. C
Combined
Sales…………….………….……………..……………………… $180,000 $200,000
Direct expenses…..………………………………………….. 129,900 142,870
Contributions to overhead……..…………………….….. $ 50,100 $ 57,130
Indirect expenses………………………………………………
Depreciation—building………..………………………
Maintenance……………………….………………………
Utilities………….……………………….…………………
Office expenses…………………..………………………
Total indirect expenses….…..….…….…...….……..
Net income………………………………………………………
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150. Vaughn Co. operates three separate departments (A, B, C). The data below is provided
for the current year:
Total Sales…………………… $120,000 ($40,000 from each department)
Cost of Goods Sold…………. $ 80,000 (50% from A; 25% from B; 25% from C)
Direct Expense……………… $ 26,000 ($6,000 from A; $12,000 from B; $8,000 from C)
Indirect Expenses……………… $ 9,000
Required:
Prepare an income statement showing the departmental contributions to overhead for the
current year.
151. The following data is available for the Cleaning Services Department of Amitol Co.
Revenues $216,000
Cost of Sales 168,000
Expenses:
Supplies-Direct 12,000
Salaries-Indirect Allocated 34,000
Rent-Direct 8,000
Rent-Indirect Allocated 4,500
Required: Calculate departmental contribution to overhead for the Cleaning Services
Department, including the department’s contribution as a percentage of revenues.
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152. The China Department of the Coulsen Department Store had sales of $282,000, cost of
goods sold of $198,750, indirect expenses of $19,875, and direct expenses of $41,250 for the
current period. What is the China Department’s contribution to overhead as a percent of
sales?
153. Eleanor Reed, the manager of the Marinette Plant of the Wisconsin Company is
responsible for all of the plant’s costs except her own salary. There are two operating
departments within the plant, Departments A and B. Each department has its own manager.
There is also a maintenance department that provides services equally to the two operating
departments. The following information is available.
A Budget
B Total A Actual
B Total
Employee wages $3,500 $4,000 $7,500 $3,200 $4,700 $7,900
Department
Manager‘s salary 800 800 1,600 800 800 1,600
Supplies 750 600 1,350 700 590 1,290
Building rent 1,500 1,500 3,000 1,400 1,400 2,800
Utilities 300 300 600 375 375 750
Maintenance 3,300 3,300 6,600 3,000 3,000 6,000
Totals $10,150 $10,500 $20,650 $9,475 $10,865 $20,340
Department managers are responsible for the wages and supplies in their department. They
are not responsible for their own salary. Building rent, utilities, and maintenance are allocated
to each department based on square footage.
Complete the responsibility accounting performance reports below that list costs controllable
by the manager of Department A, the manager of Department B, and the manager of the
Marinette plant.
Budgeted amount Actual amount Over (under)
budget
Manager, Marinette Plant
Controllable costs:
Manager, Department A
Controllable costs:
Manager, Department B
Controllable Costs:
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154. Keegan Co. has four departments: purchasing, human resources, manufacturing, and
assembly. In a recent month the four departments incurred two shared indirect expenses. The
amounts of the indirect expenses and the bases used to allocate them follow. (1) Use this
information to allocate each of the two indirect expenses across the four departments using
the tables provided below.
Indirect Expense Cost Allocation Base
Supervision $85,000 Number of employees
Utilities and Insurance 38,000 Square feet occupied
Total 123,000
Departmental data for the company’s recent reporting period follow.
Department Employees Square Feet
Purchasing 10 15,000
Human Resources 6 10,000
Manufacturing 44 50,000
Assembly 20 25,000
Total 80 100,000
Department
Purchasing
Human Resources
Manufacturing
Assembly
Total
Department
Purchasing
Human Resources
Manufacturing
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Assembly
Total
155. Naples operates a retail store and has two service departments and two operating
departments, Shoes and Clothing. During the current year, the departments had the following
direct expenses and occupied the flowing amount of floor space.
Department Direct Expenses Square Feet
Advertising $50,000 750
Administrative 100,000 1,500
Shoes 150,000 3,000
Clothing 200,000 9,750
The advertising department developed and aired 150 spots. Of these spots, 60 spots were for
Shoes and 90 spots were for Clothing. The store sold $1,500,000 of merchandise during the
year; $675,000 in Shoes and $825,000 in Clothing. Indirect expenses include rent, utilities,
and insurance expense. Total indirect expenses of $220,000 are allocated to all departments.
Prepare a departmental expense allocation spreadsheet for Naples. The spreadsheet should
assign (1) direct expenses to each of the four departments, (2) allocate the indirect expenses to
each department on the basis of floor space occupied, (3) the advertising department’s
expenses to the two operating departments on the basis of ad spots placed promoting each
department’s products, (4) the administrative department’s expenses based on the amount of
sales. Complete the departmental expense allocation spreadsheet below. Provide supporting
computations for the expense allocations below the spreadsheet.
Naples
Departmental Expense Allocations
For Year Ended December 31
Advertising Administrative Shoes Clothing
Direct Expenses
Direct expenses
Indirect expenses
Indirect expenses
Fill in the Blank Questions
156. Cycle time is calculated by process time plus inspection time plus move time plus
_____________.
157. With respect to cycle time, companies strive to reduce non-value added time in order to
improve ________________________.
158. A _______________________ incurs costs and generates revenues.
159. A ______________________ incurs costs without directly generating revenues.
160. A _____________________________ provides information for managers to use to
evaluate the profitability or cost effectiveness of each department’s activities.
161. A __________________________ helps control costs and expenses and evaluates
managers’ performance by assigning costs and expenses to the managers responsible for
controlling them.
162. Samm’s Department Store operates three departments (A, B and C). If total costs of
$4,500 are to be allocated on the basis of square feet of space (Dept. A = 1,500 Sq. Ft.; Dept.
B = 900 Sq. Ft.; Dept. C = 600 Sq. Ft.) then Dept A’s share (in percent) of the $4,500 cost
would be ________%; Dept. B would be ______%, and Dept C would be __________%. The
amount of cost allocated to Dept. C would be $__________.
163. A ______________________________ accumulates and reports costs and expenses that
a manager is responsible for, including budgeted amounts.
164. ___________________ are costs incurred to produce or purchase two or more products
at the same time.
165. A(n) _______________________ is a department whose manager is responsible for
using the center’s assets to generate income for the center.
166. The investment center return on total assets is ________________ divided by ________.
167. In the two-stage cost allocation, ___________________ costs are allocated to operating
departments, and the operating department costs are allocated to ________________.
168. The first three steps in preparing a departmental income statement are: (1) accumulate
__________________ of the department, (2) allocate __________________ to the
department, and (3) allocate _____________________ to the operating departments.
169. The __________ is a report of the amount of sales less direct expenses for a
department.