Question

SALES GROSS PROFIT DEPARTMENT A DEPARTMENT B TOTAL $559,500 $440,500 $1,000,000 $100,500 $101,000 $201,500 Indirect costs incurred by Aday Hotels are as follows: Indirect Expenses Property Taxes $24,000 Marketing $50,000 Here is a breakdown of the Square Footage of each department: Department SQ FT 60,000 40,000 Management has decided to distribute the Property Taxes based on SQ FT % and the Marketing expenses will be distributed based on the sales mix. Solve the following: Net Income Department A Select one: a. $58,100 b. $22,000 c. $14,400 O d. $9,600

Answer 1

Given that , property tax is based on SQFT%

SQFT% = 60,000:40,000

6:4

Property tax of Department A = $24,000×6÷10= $14,400/-

Marketing expense based on sales mix

Marketing expense of department A= $50,000×$559,500÷$1,000,000=$27975/-

Total indirect expenses=$14,400+$27,975=$42,375/-

Net income of Department A= Gross profit - Indirect expenses

$100,500-$42,375=$58,125/-

In this problem option A $58,100/- is favourable, considering the nearest amount.

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