Marian Corporation has two separate divisions that operate as profit centers. The following information is available for the most recent year: The Black Division occupies 20,000 square feet in the plant. The Navy Division occupies 30,000 square feet. Rent is an indirect expense and is allocated based on square footage. Rent expense for the year was $50,000. Compute gross profit for the Black and Navy Divisions, respectively.
A) $72,000; $193,000.
B) $172,000; $352,000.
C) $100,000; $241,000.
D) $52,000; $163,000.
E) $72,000; $163,000.

Question

Marian Corporation has two separate divisions that operate as profit centers. The following information is available for the most recent year:  The Black Division occupies 20,000 square feet in the plant. The Navy Division occupies 30,000 square feet. Rent is an indirect expense and is allocated based on square footage. Rent expense for the year was $50,000. Compute gross profit for the Black and Navy Divisions, respectively.
A) $72,000; $193,000. 
B) $172,000; $352,000. 
C) $100,000; $241,000. 
D) $52,000; $163,000. 
E) $72,000; $163,000.

Quizplus · Accepted Answer

To allocate the rent expense, we need to first determine the allocation rate per square foot:

Allocation rate = Rent expense ÷ Total square footage = $50,000 ÷ (20,000 + 30,000) = $0.833/ft2

Now we can allocate the rent expense to each division based on their square footage:

Black Division rent expense = 20,000 ft2 × $0.833/ft2 = $16,660

Navy Division rent expense = 30,000 ft2 × $0.833/ft2 = $24,990

To compute gross profit, we need to subtract the cost of goods sold (COGS) from the revenue for each division:

Black Division gross profit = $110,000 - $90,000 = $20,000

Navy Division gross profit = $450,000 - $208,000 = $242,000

Therefore, the answer is C) $100,000; $241,000.

Marian Corporation Has Two Separate Divisions That Operate as Profit