Question

Ultimo Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1's contribution to overhead as a percent of sales is:
Dept. Sales Cost of Goods Sold Direct Expenses Indirect Expenses
1 1,080,000 708,000 102,000 88,000
2 480,000 158,000 48,000 108,000
3 780,000 308,000 158,000 28,000
a) 56.7%
b) 25.0%
c) 34.7%
d) 34.0%
e) 61.6%

Answer 1

Answer:

b) 25.0%

Explanation:

Calculation to determine what Department 1's contribution to overhead as a percent of sales is

First step is to calculate the Contribution to overhead

Using this formula

Contribution to overhead=Sales - Cost of goods sold - Direct expenses

Let plug in the formula

Contribution to overhead=1,080,000 - $708,000 - 102,000

Contribution to overhead= $270,000

Now let calculate the Contribution to overhead as a percent of sales using this formula

Contribution to overhead as a percent of sales=Contribution to overhead/Sales

Let plug in the formula

Contribution to overhead as a percent of sales=$270,000/$1,080,000

Contribution to overhead as a percent of sales= 25%

Therefore Department 1's contribution to overhead as a percent of sales is 25%