Question

Ultimo Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1's contribution to overhead as a percent of sales 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

Answer 1

Department 1 is 20%

Department 2 is 52.5%

Department 3 is 35.7%

Step-by-step explanation:

Each department's contribution to overhead as a percentage of sales can be computed by dividing each department's contribution by sales value in each department as follows:

contribution=sales-costs of goods sold-direct expenses

Department 1 contribution as % of sales=($1,000,000-$700,000-$100,000)/$1,000,000=20%

Department 2 contribution as % of sales=($400,000-$150,000-$40,000)/$400,000=52.5%

Department 3 contribution as % of sales=($700,000-$300,000-$150,000)/$700,000=35.7%