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

12%

Step-by-step explanation:

Contribution can be defined as the portion sales revenue that covers the fixed cost as it is not consumed by the variable cost.

Workings

Dept. Sales Cost of goods Direct Expenses Indirect exp Contribution

1 1,000,000 700,000 100,000 80,000 120,000

2 400,000 150,000 40,000 100,000 110,000

3 700,000 300,000 150,000 20,000 230,000

Contribution= sales revenue - direct cost and direct expenses

For Department 1 =

Contribution = 1,000,000 -700,000-100,000-80,000 = 120,000

Contribution as a percentage of sale =

Sales = 1,000,000

Contribution = 120,000

120,000/1,000,000*100 = 12%