Answer:
Sadar Company
1. Departmental Contribution and Net Income:
Videos Department Music Department
Sales $370,500 279,500
Cost of goods sold 320,000 175,000
Contribution $ 50,500 104,500
Direct expenses:
Salaries 35,000 25,000
Maintenance 12,000 10,000
Utilities 5,000 4,500
Insurance 4,200 3,700
Indirect expenses:
Advertising 8,550 6,450
Salaries 16,200 10,400
Office expenses 2,000 1,200
Total expenses: $82,950 61,250
Net Income (Loss) $(133,450) 43,250
2. Video Department should be eliminated from the profit point of view. Its indirect costs of $26,750 can be absorbed by the Music Department.
Explanation:
a) Data and Calculations:
Videos Department Music Department
Sales $370,500 279500
Cost of goods sold 320000 175000
Direct expenses:
Salaries 35,000 25000
Maintenance 12000 10000
Utilities 5000 4500
Insurance 4200 3700
Indirect expenses:
Advertising 8,550 6,450
Salaries 16,200 10,400
Office expenses 2,000 1,200
Indirect Costs:
Advertising 15000 Sales
Salaries 27000 Number of employees
Office expenses 3,200 Square footage
Department Square footage Number of employees
Videos 5,000 3
Music 3,000 2
Indirect Costs Allocation:
Videos Department Music Department
Sales $370,500 279,500
Advertising 15000 8,550 6,450
Sales
Salaries 27000 16,200 10,400
Number of employees
Office expenses 3,200 2,000 1,200
Square footage
