Tech Support Department. | $ 676,000
Accounts Payable Department | 256,000
Other corporate administrative expenses | 402,000
Total corporate expense | $1,334,000
The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Accounts Payable Department charges divisions for services, based on the number of checks issued for each department. The usage of service by the two divisions is as follows:
Tech Support | Accounts payable
Consumer Division 250 computers | 3,400 checks
Commercial Division 150 | 6,600
Total 400 computers | 10,000 checks
The service department charges of the Tech Support Department and the Accounts
Payable Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows:
Consumer | Commercial
Revenues $5,944,000 | $4,947,200
Cost of goods sold. 3,298,400 | 2,500,000
Operating expenses 1,172,000 | 1,236,800
Prepare the divisional income statements for the two divisions.
Answer:
VAN EMBURGH TECHNOLOGY
Divisional Income Statements
For the Year Ended December 31, 2014
Consumer Division Commercial Division
Revenues $5,944,000 $4,947,200
Cost of goods sold 3,298,400 2,500,000
Gross profit $2,645,600 $2,447,200
Operating expenses 1,172,000 1,236,800
Income from operations
before service
department charges $1,473,600 $1,210,400
Less service department
charges:
Tech Support Department (Note 1) $422,500 $253,500
Accounts Payable
Department (Note 2) 87,040 509,540 168,960 422,460
Income from operations $ 964,060 $ 787,940
Supporting calculations for controllable service department charges:
Note 1: Consumer Division ($676,000 ÷ 400 computers) × 250 computers = $422,500
Commercial Division ($676,000 ÷ 400 computers) × 150 computers = $253,500
Note 2: Consumer Division ($256,000 ÷ 10,000 checks) × 3,400 checks = $87,040
Commercial Division ($256,000 ÷ 10,000 checks) × 6,600 checks = $168,960