Mens Womens Combined Sales 230,000 460,000 690,000 Direct Expenses 146,000 325,0
ID: 2487147 • 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 . Show all calculation.
Explanation / Answer
Ratio of sqaure footage :
Total square footage = 163240
Men:Women:Children = 35040:85600:42600
For example depreciation has been distributed as follows:
Men = (35040/163240) * $70000 = $15026
Women = (85600/163240) * $70000 = $36707
Children = (42600/163240) * $70000 = $18267
The other expenses have been distributed in the same way.
Office expenses has been distributed in the ratio of :
Men:Women:Children = 230000:460000:320000 = 23:46:32
sum of the ratio = 101
Men = (23/101)*20400 = $4646
Women = (46/101)*20400 = $9291
Children = (32/101)*20400 = $6463
For Children department contribution = 21.5% of sales
Contribution = 21.5% of $320000 = $68800
Direct expense = $320000 - $68800 = $251200
Income Statement
Expenses Depreciation Maintenance Utilities Office Expenses Before expansion $ 70,000.00 $ 11,400.00 $ 25,100.00 $ 12,200.00 Increase $ 3,500.00 $ 8,800.00 $ 8,200.00 After expansion $ 70,000.00 $ 14,900.00 $ 33,900.00 $ 20,400.00