Sales—Winter Sports Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,500,000
Sales—Summer Sports Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,400,000
Cost of Goods Sold—Winter Sports Division . . . . . . . . . . . . . . . . . . . . . . . . 18,900,000
Cost of Goods Sold—Summer Sports Division . . . . . . . . . . . . . . . . . . . . . . . 21,112,000
Sales Expense—Winter Sports Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,040,000
Sales Expense—Summer Sports Division . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,096,000
Administrative Expense—Winter Sports Division . . . . . . . . . . . . . . . . . . . . 3,150,000
Administrative Expense—Summer Sports Division. . . . . . . . . . . . . . . . . . . 3,239,600
Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,357,900
Transportation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595,000
Accounts Receivable Collection Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000
Warehouse Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,650,000
The bases to be used in allocating expenses, together with other essential information, are as follows:
a. Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $611,000; Summer Sports Division, $746,900.
b. Transportation expense—charged back to divisions at a charge rate of $14.00 per bill of lading: Winter Sports Division, 20,400 bills of lading; Summer Sports Division, 22,100 bills of lading.
c. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $7.50 per invoice: Winter Sports Division, 13,120 sales invoices; Summer Sports Division, 18,880 sales invoices.
d. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 124,550 square feet; Summer Sports Division, 140,450 square feet.
Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Provide supporting calculations for service department charges.
Answer:
FULL THROTTLE SPORTING GOODS CO.
Divisional Income Statements
For the Year Ended December 31, 2014
Winter
Sports
Division
Summer
Sports
Division
Sales $31,500,000 $36,400,000
Cost of goods sold 18,900,000 21,112,000
Gross profit $12,600,000 $15,288,000
Divisional selling expenses $ 5,040,000 $ 5,096,000
Divisional administrative expenses 3,150,000 3,239,600
$ 8,190,000 $ 8,335,600
Income from operations before service
department charges $ 4,410,000 $ 6,952,400
Less service department charges:
Advertising expense (Note 1) $ 611,000 $ 746,900
Transportation expense (Note 2) 285,600 309,400
Accounts receivable collection expense (Note 3) 98,400 141,600
Warehouse expense (Note 4) 1,245,500 1,404,500
Total $ 2,240,500 $ 2,602,400
Income from operations $ 2,169,500 $ 4,350,000
Note (1) Winter Sports Division: $611,000
Summer Sports Division: $746,900
Note (2) Winter Sports Division:
Summer Sports Division:
(20,400 bills of lading × $14.00 per bill of lading)
(22,100 bills of lading × $14.00 per bill of lading)
Note (3) Winter Sports Division:
Summer Sports Division:
(13,120 invoices × $7.50 per invoice)
(18,880 invoices × $7.50 per invoice)
Note (4) Winter Sports Division:
Summer Sports Division:
($2,650,000/265,000 sq. ft.) × 124,550 sq. ft.
($2,650,000/265,000 sq. ft.) × 140,450 sq. ft.