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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

The Accounts Payable Department has expenses of $600,000 and makes 150,000 payments to the various vendors who provide products and services to the divisions. Division A has operating income of $900,000 before service department charges and makes 60,000 payments to vendors. If the Accounts Payable Department is treated as a service department, what is Division A’s operating income? A. $300,000
B. $900,000
C. $660,000
D. $540,000

To determine

Concept Introduction:

Cost center:

Cost center incurs costs and does not generate the revenue directlyInvestment Center:

Investment center takes care of revenue, cost and investment

Profit Center:

Profit center generate revenue and incur expenses

To Calculate:

The Operating Income for Division A

Explanation

The Operating Income for Division A is calculated as follows:

Division A Operating income before service department charges $900,000

Le...

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