Question

Departmental contribution to overhead is calculated as the amount of sales of the department less:

Answer 1

The total cost of running said department. In other words this is talking about if you had 5 employees within the department and $100,000 for inventory. The employees work at $10/hr for 1 month at 40 hrs a week. That means they each brought in 400$ a week for 4 weeks or 1600$ ($8000 total). So the departments expenses this month was $113,000 dollars (extra 5k for insurance, electricity, gas, water, trash, cleaning, rent, etc.) No say the income was $200,000 for that month in sales. That would mean the Departmental contribution to overhead was $87,000. This is because after all the expenses were factored in there was still $87,000 that could go to the companies overall overhead. Departmental contribution to overhead is 1 departments contribution to the entire companies overhead. In order to contribute it must first make more than it spends.