Star Manufacturing has departments A and B with departmental income statements as follows.
$$\begin{array} { | l | r | r | }
\hline & \text { Department A } & \text { Department B } \
\hline \text { Net sales } & \$ 3 5 0 0 0 & \$ 2 5 0 0 0 \
\hline \text { Cost of sales } & 14000 & 11000 \
\hline \text { Other experses } & 6500 & 15500 \
\hline \text { Profit (Loss) } & \$ 14500 & ( \$ 1500 ) \
\hline
\end{array}$$
Star Manufacturing is considering eliminating Department B. Of the total 'other expenses' for the two departments of $22 000, $16 000 are fixed general overhead expenses and the rest are variable expenses based on 10% of sales. What is the present departmental contribution of Department B?

Question

Star Manufacturing has departments A and B with departmental income statements as follows.
$$\begin{array} { | l | r | r | } 
\hline & \text { Department A } & \text { Department B } \
\hline \text { Net sales } & \$ 3 5 0 0 0  & \$ 2 5 0 0 0  \
\hline \text { Cost of sales } & 14000 & 11000 \
\hline \text { Other experses } & 6500 & 15500 \
\hline \text { Profit (Loss) } & \$ 14500 & ( \$ 1500 ) \
\hline
\end{array}$$
Star Manufacturing is considering eliminating Department B. Of the total 'other expenses' for the two departments of $22 000, $16 000 are fixed general overhead expenses and the rest are variable expenses based on 10% of sales. What is the present departmental contribution of Department B?

Quizplus · Accepted Answer

The contribution margin is calculated as sales minus variable costs. Department B's variable expenses are 10% of sales, which is $2,500. The contribution is $25,000 (sales) - $11,000 (cost of sales) - $2,500 (variable expenses) = $11,500.

Star Manufacturing Has Departments a and B with Departmental Income