The Management of Universal Co is considering the closure of one of its operations, Department C, and the financial accountant has produced the following report:

Department A B C Total

Sales (units) 10000 12000 4000 26000

Sales () 400000 360000 60000 820000

Cost of sales ()

Direct material 200000 220000 30000 450000

Direct labour 75000 60000 20000 155000

Production overhead 13461 16158 5381 35000

Gross profit 111539 63842 4619 180000

Expenses 27692 33231 11077 72000

Net profit/(loss) 83847 30611 (6458) 108000

Production overheads of 35000 have been apportioned to the three departments on the basis of unit sales volume.

Expenses of 72000 are head office overheads, again apportioned to departments on the basis of sales volume.

As the management accountant, you further ascertain that, on a cost driver basis:

• 50% of the production overheads can be directly traced to departments on a 2:2:1 basis, with the remainder not being possible to allocate.
• Similarly, 60% of the expenses can be allocated 3:3:2, with the remainder not being possible to allocate.
• 70% of the so-called direct labour is fixed and cannot be reasdily allocated. The remaining 30% is variable and can be better allocated on the basis of sales volume.

You are required to:

a). Restate the financial position in terms of the contribution made by each department. (10 marks)

b). Account for the overheads which have not been allocated to the departments, and identify the total net profit achieved. Then make a clear recommendation as to department closures (if any). (5 marks)

c). Discuss any other factors that should be considered before a final decision is made. (5 marks)

Total 20 marks

For part (A) could you please show me how you calculated the values for example for direct labour. Thank you