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:
Holliday, Inc.Departmental Income Statement for Year Ended December 31
$\begin{array}{l|l|l|l}&\text { Dept. A }&\text { Dept. B }&\text { Combined }\\ \hline \text { Sales } & \$ 180,000 & \$ 200,000 & \$ 380,000 \\\hline \text { Direct expenses } & \underline{129,900} & \underline{142,870} & \underline{272,770} \\\hline \text { Contributions to overhead } & \$ 50,100 & \$ 57,130 & \$ 107,230 \\\hline \text { Indirect expenses: } & & & \\\hline \text { Depreciation--Building } & 10,000 & 11,760 & 21,760 \\\hline \text { Maintenance } & 1,600 & 1,700 & 3,300 \\\hline \text { Utilities } & 6,200 & 6,320 & 12,520 \\\hline \text { Office expenses } & 1,800 & 2,000 & 3,800 \\\hline \text { Total indirect expenses } & \$ 19,600 & \$ 21,780 & \$ 41,380 \\\hline \text { Net income } & \$ 30,500 & \$ 35,350 & \$ 65,850 \\\hline\end{array}$
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.)
$$\begin{array} { l | r | r | l | l } & \text { Dept. A } & \text { Dept. B } & \text { Dept. C } & \text { Combined } \\\hline \text { Sales } & \$ 180,000 & \$ 200,000 & & \\\hline \text { Direct expenses } & 129,900 & 142,870 & & \\\hline \begin{array} { l } \text { Contributions to } \\\text { overhead }\end{array} & \$ 50,100 & \$ 57,130 & & \\\hline \text { Indirect expenses } & & & & \\\hline \text { Depreciation -building } & & & & \\\hline \text { Maintenance } & & & & \\\hline \text { Utilities } & & & & \\\hline \text { Office expenses } & & & & \\\hline \text { Total indirect expenses } & & & & \\\hline \text { Net income } & & & & \\\hline\end{array}$$