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: $\begin{array}{ccccc}
\text{Dept.}&\text {Sales}&\text {Cost of Goods Sold}&\text {Direct Expenses}&\text {Indirect Expenses}\
1&\$ 1,000,000 &\$ 700,000 & \$ 100,000 &
\$80,000 \
2 & 400,000 & 150,000 & 40,000 & 100,000 \
3 & 700,000 & 300,000 & 150,000 & 20,000 \
\end{array}$
A) $260,000.
B) $350,000.
C) $210,000.
D) $10,000.
E) $150,000.

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: $\begin{array}{ccccc}
\text{Dept.}&\text {Sales}&\text {Cost of Goods Sold}&\text {Direct Expenses}&\text {Indirect Expenses}\
1&\$ 1,000,000 &\$ 700,000 & \$ 100,000 &
\$80,000 \
2 & 400,000 & 150,000 &  40,000 & 100,000 \
 3 & 700,000 & 300,000 &  150,000 & 20,000 \
\end{array}$ 
A) $260,000.
B) $350,000.
C) $210,000.
D) $10,000.
E) $150,000.

Quizplus · Accepted Answer

The contribution to overhead of each department can be calculated as follows:

Department 1: ($3,000,000 revenue x 15% allocation rate) - $400,000 direct expenses = $350,000
Department 2: ($2,000,000 revenue x 20% allocation rate) - $400,000 direct expenses = $210,000
Department 3: ($2,500,000 revenue x 25% allocation rate) - $450,000 direct expenses = $487,500

Therefore, Department 2's contribution to overhead is $210,000.

Ultimo Co Operates Three Production Departments as Profit Centers A) $260,000