Marks Corporation Has Two Operating Departments, Drilling and Grinding, and an Office

question 64

Multiple Choice

Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: The amount of the advertising cost that should be allocated to Drilling for the current period is:

• A) $16,250.
• B) $ 45,000.
• C) $ 23,750.
• D) $325,000.
• E) $ 54,250.

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Definitions:

Sales Mix

The relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.

High-margin Items

Products or services that generate a significantly higher percentage of profit compared to their cost of production or acquisition.

Low-margin Items

Products or services that generate a minimal profit margin, often sold to attract customers or achieve volume sales.

Contribution Margin Ratio

A financial metric indicating the portion of sales revenue that is not consumed by variable costs and therefore contributes to covering fixed costs.