Question

Ultimo Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 2's contribution to overhead in dollars is:

Dept.
Sales Cost of
Goods Sold Direct
Expenses Indirect
Expenses
1 $1,000,000 $700,000 $100,000 $80,000
2 400,000 150,000 40,000 100,000
3 700,000 300,000 150,000 20,000
a.$210,000.

b.$350,000.

c.$10,000.

d.$260,000.

e.$150,000.

Answer 1

Department 2's contribution to overhead is the difference between its revenue ($400,000) and the total variable costs ($290,000), yielding a contribution of $110,000. The given options of $260,000 and $150,000 are incorrect.

Step-by-step explanation:

The question relates to a business situation where a decision has to be made based on the contribution to overhead by a production department, which is considered a profit center. To calculate Department 2's contribution to overhead, we need to look at the difference between its revenues and variable costs, assuming that these are the only figures provided for Department 2's performance.

From the given information, Department 2's revenue is $400,000, and the total variable costs are the sum of the other numbers provided, which are $150,000, $40,000, and $100,000. Adding up the variable costs:
$150,000 (labor) + $40,000 (capital) + $100,000 (materials) equals $290,000 in total variable costs.

To find the contribution to overhead, subtract the total variable costs from the revenue:
Revenue - Variable Costs = Contribution to Overhead.
$400,000 - $290,000 = $110,000.

Therefore, Department 2's contribution to overhead is $110,000, not $260,000 or $150,000 as suggested by the options.

Answer 2

None of the available options are correct.

Department 2's contribution to overhead in dollars is $210,000

Step-by-step explanation:

Contribution to overhead = Sales - Cost of goods sold - Direct expenses

Contribution to overhead = $400,000 - $150,000 - $40,000

Contribution to overhead = $210,000