Sample Problems Exercises 27.2 and 27.4

Exercise 27.2 The total office expense for the year at Fashions for Less was $50,000. Compute the amount to be allocated to each department using total sales as the basis for the allocation. The following information is provided: Selected financial data, as of December 31, 2007, for Fashions For Less, a discount retail store, follows. Round all calculations off to the nearest dollar. Credit sales –Women’s clothing, $420,000 –Men’s clothing, $140,000 Total sales –Women’s clothing, $600,000 –Men’s clothing, $200,000 Sales returns and allowances –Women’s clothing –Credit sales, $5,000 –Cash sales, $600 Men’s clothing –Credit sales, $5,000 –Cash sales, $500 Book value of inventory and equipment –Women’s clothing, $150,000 –Men’s clothing, $50,000

. DEPARTMENTBASIS: TOTAL SALES PERCENTTOTAL OFFICE EXPENSE ALLOCATION Women’s clothing $600,00075%$50,000$37,500 Men’s Clothing $200,00025%$50,000$12,500 Combined total $800,000100%$50,000

Exercise 27.4 Data related to the income and expenses of Regency Company for the year ending December 31, 2007 follow:

Prepare a partial departmental income statement showing the contribution margin and net income of each department REGENCY COMPANY Income Statement (partial) For the year ended December 31, 2007 Jewelry dep. China dep. Totals Gross profit279, , ,100 Direct expenses134,700 83, ,500 Contribution margin144,800 85, ,600 Indirect expenses 73,690 46, ,190 Net income (loss) from operations 71,110 39, ,410 Other income interest income 600 Net income for the year 111,010