Managerial Accounting: Departmental Analysis and Recommendation

This document provides a solution to a managerial accounting problem involving departmental income analysis. It covers the allocation of indirect expenses to different departments (A and B) within a retail store, calculates net income for each department, and offers recommendations regarding the potential discontinuation of Department B. The analysis includes detailed allocations of salaries, depreciation, insurance, and office expenses. Furthermore, the solution presents a three-column report comparing total expenses, eliminated expenses, and continued expenses, along with a forecasted annual income statement and a reconciliation between the current and forecasted statements. The document concludes with a recommendation against eliminating Department B, emphasizing the importance of considering unavoidable indirect expenses and the overall impact on the firm's profitability. The salary expenses for the forecasted income statement is computed and presented in the document.

MANAGERIAL
ACCOUNTING

 Vortex has a retail store with two departments
A & B with relevant cost and expense
information being given
 Objective is to allocate the indirect expenses to
the two departments and thereby compute the
net income
 Based on the income computation, it needs to
be highlighted if Department B ought to be
discontinued
Problem 9-4A -
Introduction

 Allocation of Salaries
Indirect expenses
allocation

 Allocation of Depreciation
Indirect expenses allocation
(contd..)

 Allocation of Insurance
Indirect Expense Allocation
(Contd..)

 Allocation of office expenses
Indirect Expense Allocation
(Contd..)

Departmental Income
Statement

 Department B should not be eliminated
despite making a net loss
◦ Indirect expenses are unavoidable
◦ Elimination of Department B would lower the
overall profits of firm by $ 30,000
◦ Department B is able to generate profits when
indirect expenses are not considered
◦ Company needs to ensure discontinuation of
atleast $ 30,000 indirect or overhead expenses to
discontinue department B
Recommendation

 Preparation of three column report
◦ Column 1- Total expenses including COGS
◦ Column 2 – Eliminated expenses by closing
department 200
◦ Column 3- Continued Expenses
 Forecasted Annual Income Statement
 Reconciliation between current income
statement and forecasted annual income
Problem 10-6A -
Introduction

Three Column Report

Forecasted Income
Statement

 The salary expenses for the forecasted
income statement is shown below.
Computation of Salary Expenses