Boiano Corp

question 18

Essay

Boiano Corp.operates a retail store and has two service departments and two operating departments,Hardware and Automotive.During the current year,the departments had the following direct expenses and occupied the following amount of floor space. The advertising department developed and aired 150 spots.Of these spots,60 spots were for Hardware and 90 spots were for Automotive.The store sold $1,500,000 of merchandise during the year;$675,000 in Hardware and $825,000 in Automotive.Indirect expenses include rent,utilities,and insurance expense.Total indirect expenses of $220,000 are allocated to all departments.Prepare a departmental expense allocation spreadsheet for Boiano.The spreadsheet should assign (1)direct expenses to each of the four departments, (2)allocate the indirect expenses to each department on the basis of floor space occupied, (3)the advertising department's expenses to the two operating departments on the basis of ad spots placed promoting each department's products, (4)the administrative department's expenses based on the amount of sales.Complete the departmental expense allocation spreadsheet below.Provide supporting computations for the expense allocations below the spreadsheet.

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Definitions:

Required Return

The minimum expected return an investor demands for holding a particularly risky investment.

Plowback Ratio

The percentage of profits a company keeps instead of paying out to shareholders in the form of dividends.

Risk-Free Rate

This refers to the theoretical rate of return of an investment with no risk of financial loss, typically represented by government bonds.

Intrinsic Value

The fundamental, true value of an asset based on its characteristics and cash flow, independent of its current market price.