Holliday, Inc Holliday Allocates Building Depreciation, Maintenance, and Utilities on the Basis

Essay

Holliday, Inc., operates a retail store with two departments, A and B. Its departmental income statement for the current year follows:
$$\begin{array}{l}\text { Holliday, Inc. Departmental Income Statement for Year Ended December } 31\\\begin{array} { | l | r | r | r | } \hline & { \text { Dept. A } } & \text { Dept. B } & { \text { Combined } } \\\hline \text { Sales } & \$ 180,000 & \$ 200,000 & \$ 380,000 \\\hline\text { Direct expenses } & \underline { 129,900 } & \underline { 142,870 } & \underline { 272,770 } \\\hline \text { Contributionsto overhead } & \underline {\$ 50,100 }& \underline {\$ 57,130} &\underline { \$ 107,200 }\\\hline \text { Indirect expenses: } & & & \\\hline \text { Depreciation-Building } & 10,000 & 11,760 & 21,760 \\\hline \text { Maintenance } & 1,600 & 1,700 & 3,300 \\\hline \text { Utilities } & 6,200 & 6,320 & 12,520 \\\hline \text { Office expenses } & \underline {1,800} & \underline { 2,000 } & \underline { 3,800} \\\hline\text { Total indirect expenses } &\underline { \$ 19,600} & \underline {\$ 21,780 }&\underline { \$ 41,380} \\\hline \text { Net income } &\underline {\$30,500}&\underline {\$35,350}&\underline {\$65,850}\\\hline\end{array}\end{array}$$ Holliday allocates building depreciation, maintenance, and utilities 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. Increases in indirect expenses would include: maintenance, $500; utilities, $3,800; and office expenses, $1,200.
Complete the following departmental income statements, showing projected results of operations for the three sales departments. (Round amounts to the nearest whole dollar.)
$$\begin{array} { | l | r | r | r | r | } \hline & { \text { Dept. A } } & { \text { Dept. B } } & \text { Dept. C } & \text { Combined } \\\hline \text { Sales } & \$ 180,000 & \$ 200,000 & & \\\hline \text { Direct expenses } & 129,900 & 142,870 & & \\\hline \begin{array} { l } \text { Contributionsto } \\\text { overhead }\end{array} & \$ 50,100 & \$ 57,130 & & \\\hline \text { Indirect expenses } & & & & \\\hline \text { Depreciation-building } & & & & \\\hline \text { Maintenance } & & & & \\\hline \text { Utilities } & & & & \\\hline \text { Office expenses } & & & & \\\hline \text { Total indirect expenses } & & & & \\\hline \text { Net income } & & & & \\\hline\end{array}$$