Problem:
Management requests departmental income statements for Hacker's Haven, a computer store that has five departments. Three are operating departments (hardware, software, and repairs) and two are service departments (general office and purchasing).
|
|
General
Office
|
Purchasing
|
Hardware
|
Software
|
Repairs
|
|
Sales
|
-
|
-
|
$960,000
|
$600,000
|
$840,000
|
|
Cost of goods sold
|
-
|
-
|
500,000
|
300,000
|
200,000
|
|
Direct expenses
|
|
|
|
|
|
|
Payroll
|
$60,000
|
$45,000
|
80,000
|
25,000
|
325,000
|
|
Depreciation
|
6,000
|
7,200
|
33,000
|
4,200
|
9,600
|
|
Supplies
|
15,000
|
10,000
|
10,000
|
2,000
|
25,000
|
The departments incur several indirect expenses. To prepare departmental income statements, the indirect expenses must be allocated across the five departments. Then the expenses of the two service departments must be allocated to the three operating departments. Total cost amounts and the allocation bases for each indirect expense follow.
|
Indirect Expense
|
Total Cost
|
Allocation Basis
|
|
Rent
|
$150,000
|
Square footage occupied
|
|
Utilities
|
50,000
|
Square footage occupied
|
|
Advertising
|
125,000
|
Dollars of sales
|
|
Insurance
|
30,000
|
Value of assets insured
|
|
Service departments
|
|
|
|
General office
|
?
|
Number of employees
|
|
Purchasing
|
?
|
Dollars of cost of goods sold
|
The following additional information is needed for indirect expense allocations.
|
Department
|
Square
Feet
|
Sales
|
Insured
Assets
|
Employees
|
Cost of
Goods Sold
|
|
General office
|
500
|
|
$ 60,000
|
|
|
|
Purchasing
|
500
|
|
72,000
|
|
|
|
Hardware
|
4,000
|
$ 960,000
|
330,000
|
5
|
$ 500,000
|
|
Software
|
3,000
|
600,000
|
42,000
|
5
|
300,000
|
|
Repairs
|
2,000
|
840,000
|
96,000
|
10
|
200,000
|
|
Totals
|
10,000
|
$2,400,000
|
$600,000
|
20
|
$1,000,000
|
Required
1. Prepare a departmental expense allocation spreadsheet for Hacker's Haven.
2. Prepare a departmental income statement reporting net income for each operating department and for all operating departments combined.