Tempest Enterprises began operations on January 1, 20x1, with all of its activities conducted from a single facility. The company's accountant concluded that the year's building depreciation should be allocated as follows: selling activities, 20%; administrative activities, 35%; and manufacturing activities, 45%. If Tempest sold 60% of 20x1 production during that year, what percentage of the depreciation would appear (either directly or indirectly) on the 20x1 income statement?
A) 27%.
B) 45%.
C) 55%.
D) 82%.
E) 100%.

Question

Quizplus · Accepted Answer

The depreciation allocated to selling (20%) and administrative (35%) activities, totaling 55%, would appear directly on the income statement. The depreciation allocated to manufacturing activities (45%) would be included in the cost of goods sold, but only for the portion of production that was sold (60%). Therefore, 45% * 60% = 27% of the total depreciation would indirectly appear on the income statement through the cost of goods sold. Adding the direct (55%) and indirect (27%) portions gives a total of 82% of the depreciation appearing on the income statement.

Tempest Enterprises Began Operations on January 1, 20x1, with All