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Determining Departmental Contribution to Overhead & Net Income

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Renton Co. has two operating (production) departments supported by a number of service departments. The following information was collected for a recent period:

(see attachment for table)

Indirect costs are allocated as follows: salaries on the basis of sales, office expenses on the basis of the number of employees, and all other costs on the basis of square footage. Additional information about the production departments follows:

(see attachment for table)

Sales for the Machining Department are $724,404 and sales for the Assembly Department are $356,796.
Determine the departmental contribution to overhead and the departmental net income for each production department. Show how you computed your answer.

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Solution Summary

The response uses the direct method to allocate the indirect costs using the cost drivers specified, in an attached Excel sheet. Departmental income is computed using allocated costs.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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