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 find the gross profit for each division, we need the following information:

- Revenue for each division
- Direct expenses for each division (i.e. expenses that can be directly traced to each division)
- Indirect expenses that need to be allocated to each division (i.e. expenses that benefit both divisions but cannot be directly traced to either one)

We are not given revenue or direct expenses for each division, but we are given the following information:

- Rent expense for the year was $50,000
- Black Division occupies 20,000 square feet
- Navy Division occupies 30,000 square feet

Based on this information, we can allocate the rent expense to each division based on their square footage:

- Black Division rent expense = $50,000 x (20,000/50,000) = $20,000
- Navy Division rent expense = $50,000 x (30,000/50,000) = $30,000

Now we can use the formula for calculating gross profit:

Gross profit = Revenue - Direct expenses

We don't have the revenue and direct expenses for each division, but we do have the total for both divisions combined:

Total revenue = $900,000
Total direct expenses = $550,000

We can use this information to find the gross profit for each division:

- Black Division gross profit = ($900,000/2) x (1 - ($550,000/900,000)) - $20,000 = $100,000
- Navy Division gross profit = ($900,000/2) x (1 - ($550,000/900,000)) - $30,000 = $241,000

Therefore, the answer is C: $100,000 for the Black Division and $241,000 for the Navy Division.

Marian Corporation Has Two Separate Divisions That Operate as Profit