Mens Womens Combined Sales 230,000 460,000 690,000 Direct Expenses 146,000 325,0
ID: 2481567 • Letter: M
Question
Mens Womens Combined
Sales 230,000 460,000 690,000
Direct Expenses 146,000 325,000 471,000
Contributions to overhead 84,000 135,000 219,000
Indirect Expenses:
Depreciation - Building 25,000 45,000 70,000
Maintenance 2,800 8,600 11,400
Utilities 10,500 14,600 25,100
Office Expenses 4,200 8,000 12,200
Total Indirect Expenses 42,500 76,200 118,700
Net income 41,500 58,800 100,300
The Company allocates building depreciation, maintenance, and utilities on the basis of square footage. Office expenses are allocated on the basis of sales. (Round allocation percentages to one decimal)
Management is considering an expansion to a three-department operation. The proposed Childrens Department would generate $320,000 in additional sales and have a 21.5% contribution to overhead. The company owns its building. Opening the Childrens Department would redistribute the square footage as follows: Mens= 35,040, Womens = 85,600 and Childrens = 42,600. Increases in indirect expenses would include maintenance, $3,500; utilities, $8,800; and office expenses, $8,200.
Required:
Prepare a projected income statement using the format above, but include Childrens Department .
Explanation / Answer
Projected income statement using the format above is calculated as under:
Building depreciation, maintenance, and utilities are applied on the basis of square footage and office expenses on the basis of sales.
Mens Women Children Combined Sales 2,30,000 4,60,000 3,20,000 10,10,000 Direct Expenses 1,46,000 3,25,000 2,51,200 7,22,200 Contributions to overhead 84,000 1,35,000 68,800 2,87,800 Indirect Expenses: Depreciation - Building 15,029 36,704 18266.46 70,000 Maintenance 3,199 7,813 3888.147 14,900 Utilities 7,278 17,775 8846.187 33,900 Office Expenses 4,646 9,291 6463.366 20,400 Total Indirect Expenses 30,152 71,584 37,464 1,39,200 Net income 53,848 63,416 31,336 1,48,600 Square footage 35,050 85,600 42,600 1,63,250