2nd picture is exhibit 2 
EXHIBIT #3 Katherine's Truffle Kreations Statement of Comprehensive Income For the Year Ending December 31, 2018 Sales Volume (truffles) 120,000 240,000 Sales Expenses Owner's Salary Employee's wages Chocolate Butter Cream Flavour Extracts Property Taxes Building Depreciation Machine Depreciation Heating Electricity Sundry Appliances Total Expenses Operating Profit 80,000 21,000 32,000 7,400 8,000 3,000 10,000 10,000 1,000 1,200 1,200 1,400 176,200 63,800 Katherine estimated that she would incur direct costs as follows with the sales volume indicated below: Sales Volume (chocolate pieces) Additional employee Chocolate Flavour extracts Molds Sundry appliances Electricity $ $ $ $ $ $ 40,000 30,000 95,000 1,000 2,000 1,000 10,000 The following annual indirect costs would be added with the purchase of the machinery: New Machine, depreciation $ 6,000 Building addition, depreciation $ 10,000 Additional property taxes 9,500 Additional Information: 1. Given their lack of materiality, Katherine didn't do much analysis with the increased heating and electricity costs and, given that the addition slightly more than doubles the area of the store, simply doubled these smaller indirect costs. 2. Prior to the expansion, the store is split 50/50 between the production area and the selling area. In terms of the space available in the original store, 50% will still be used for truffle production, but the selling area will be shared equally between truffles and chocolate pieces. 3. Katherine also estimates that the additional employee will spend an equal amount of time waiting on customers wanting to buy truffles and those wanting to buy chocolate pieces. 4. The building addition will be used solely for the new chocolate machine and making chocolate pieces. Analyze the indirect costs below to determine proper allocation between truffles and chocolate pieces (which costs can be traced directly to truffles, and which costs can be traced directly to chocolate pieces?). There is extra information regarding the machine purchase in Exhibit #2. Truffles Chocolate Pieces Allocation of original space (per Exhibit 2) 75% 25% Allocation to Product Lines b. Chocolate Pieces a. Truffles Cost Original Property Taxes New Property Taxes Original Building Depreciation New Building Depreciation Original Machine Depreciation New Machine Depreciation Original Heating New Heating Original Electricity New Electricity Salesperson Wages Total Indirect Costs Amount $ 10,000 9,500 10,000 10,000 1,000 6,000 1,200 1,200 1,200 1,200 51,000 $ 102,300 EXHIBIT #3 Katherine's Truffle Kreations Statement of Comprehensive Income For the Year Ending December 31, 2018 Sales Volume (truffles) 120,000 240,000 Sales Expenses Owner's Salary Employee's wages Chocolate Butter Cream Flavour Extracts Property Taxes Building Depreciation Machine Depreciation Heating Electricity Sundry Appliances Total Expenses Operating Profit 80,000 21,000 32,000 7,400 8,000 3,000 10,000 10,000 1,000 1,200 1,200 1,400 176,200 63,800 Katherine estimated that she would incur direct costs as follows with the sales volume indicated below: Sales Volume (chocolate pieces) Additional employee Chocolate Flavour extracts Molds Sundry appliances Electricity $ $ $ $ $ $ 40,000 30,000 95,000 1,000 2,000 1,000 10,000 The following annual indirect costs would be added with the purchase of the machinery: New Machine, depreciation $ 6,000 Building addition, depreciation $ 10,000 Additional property taxes 9,500 Additional Information: 1. Given their lack of materiality, Katherine didn't do much analysis with the increased heating and electricity costs and, given that the addition slightly more than doubles the area of the store, simply doubled these smaller indirect costs. 2. Prior to the expansion, the store is split 50/50 between the production area and the selling area. In terms of the space available in the original store, 50% will still be used for truffle production, but the selling area will be shared equally between truffles and chocolate pieces. 3. Katherine also estimates that the additional employee will spend an equal amount of time waiting on customers wanting to buy truffles and those wanting to buy chocolate pieces. 4. The building addition will be used solely for the new chocolate machine and making chocolate pieces. Analyze the indirect costs below to determine proper allocation between truffles and chocolate pieces (which costs can be traced directly to truffles, and which costs can be traced directly to chocolate pieces?). There is extra information regarding the machine purchase in Exhibit #2. Truffles Chocolate Pieces Allocation of original space (per Exhibit 2) 75% 25% Allocation to Product Lines b. Chocolate Pieces a. Truffles Cost Original Property Taxes New Property Taxes Original Building Depreciation New Building Depreciation Original Machine Depreciation New Machine Depreciation Original Heating New Heating Original Electricity New Electricity Salesperson Wages Total Indirect Costs Amount $ 10,000 9,500 10,000 10,000 1,000 6,000 1,200 1,200 1,200 1,200 51,000 $ 102,300
