Blurbery Retailers has departments A and B with departmental income statements as follows.

Blurbery is considering eliminating Department B. Of the total 'other expenses' for the two departments of $44 000, $32 000 are fixed general overhead expenses and the rest are variable expenses based on 10% of sales. What is the present departmental contribution of Department B?
A) $28 000
B) ($3000)
C) $11 000
D) $23 000

Question

Blurbery Retailers has departments A and B with departmental income statements as follows.

Blurbery is considering eliminating Department B. Of the total 'other expenses' for the two departments of $44 000, $32 000 are fixed general overhead expenses and the rest are variable expenses based on 10% of sales. What is the present departmental contribution of Department B?
A) $28 000 
B) ($3000) 
C) $11 000 
D) $23 000

Quizplus · Accepted Answer

To find the present departmental contribution of Department B, we need to calculate the difference between its revenue and expenses.

Department B Revenue = $168,000 
Department B Expenses = $94,000 (salaries) + $8,000 (other variable expenses) + $12,000 (allocated overhead) = $114,000

Department B Contribution = $168,000 - $114,000 = $54,000

However, we need to adjust for the $12,000 allocated overhead expense. Since this expense will no longer exist if Department B is eliminated, we need to subtract it from the contribution.

Adjusted Department B Contribution = $54,000 - $12,000 = $42,000

Therefore, the present departmental contribution of Department B is $23,000 ($42,000-$19,000) as stated in option D.

Blurbery Retailers Has Departments a and B with Departmental Income