7. Burien, Inc. operates a retail store with two departments, A and B. Its departmental income statement for the current year follow:
Departmental Income Statement
For Year Ended December 31
DeptA DeptB Combined
Sales $180,000 $200,000 $380,000
Direct expenses 129,900 142,870 272,770
Contributions to overhead $50,100 $57,130 $107,230
Depreciation-Building 10,000 11,760 21,760
Maintenance 1,600 1,700 3,300
Utilities 6,200 6,320 12,520
Office expenses 1,800 2,000 3,800
Total indirect expenses 19,600 21,780 41,380
Net Income 30,500 35,350 65,850
Burien allocates building depreciation, maintenance, and utilites on the basis of square footage. Office expenses are allocated on the basis of sales
Management is considering an expansion to a three-department operation. The proposed Department C would generate $120,000 in additional sales and have a 17.5% contribution to overhead. The company owns its building. Opening Department C would redistribute the square footage to each department as follows: A, 19,040; B, 21,760 sq. ft,; C, 13,600.
Increase in indirect expenses would include: maintenance, $500; utilities, $3800; and office expenses, $1200.
Complete the following departmental income statements, showing projected results of operations
for the three sales departments. (Round amounts to the nearest whole dollar.)
DeptA DeptB DeptC Combined
Sales $180,000 $200,000
Direct expenses 129,900 142,870
Contributions to overhead $50,100 $57,130
Total indirect expenses
16. A company is trying to decide which two new product lines to introduce in the coming year.
The company requires a 12% on investment. The predicted revenue and cost data for each product line follows:
Unit Sales 25,000 20,000
Unit Sales price $30 $30
Direct materials $15,000 $8,000
Direct labor $120,000 $80,000
Other cash operating expenses $30,000 $25,000
New equipment costs $2,500,000 $1,500,000
Estimated useful life (no salvage) 5 years 5 years
The company has a 30% tax rate and it uses the straight-line depreciation method.
The present value of an annuity of 1 for 5 years at 12% is 3.6048. Compute the net present value for each piece of equipment under each of the two product lines. Which, if either of these two investments is acceptable?
The solution computes Burien, Inc departmental income statements and PV of two investments in equipment