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Divisional income statements with service department charges Yozamba Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and Purchasing. The corporate expenses for the year ended December 31, 2016, are as follows: Tech Support Department $ 516,000 Purchasing Department 89,600 Other corporate administrative expenses 560,000 Total corporate expense $1,165,600 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 Purchasing Department charges divisions for services, based on the number of purchase orders for each department. The usage of service by the two divisions is as follows: Tech Support Purchasing Consumer Division 375 computers 1,960 purchase orders Commercial Division 225 3,640 Total 600 computers 5,600 purchase orders The service department charges of the Tech Support Department and the Purchasing 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 $7,430,000 $6,184,000 Cost of goods sold 4,123,000 3,125,000 Operating expenses 1,465,000 1,546,000 Prepare the divisional income statements for the two divisions.

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615
Chapter 24, Problem 24.7EX
Textbook Problem
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Divisional income statements with service department charges

Yozamba Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and Purchasing. The corporate expenses for the year ended December 31, 2016, are as follows:

Tech Support Department $ 516,000
Purchasing Department 89,600
Other corporate administrative expenses 560,000
Total corporate expense $1,165,600

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 Purchasing Department charges divisions for services, based on the number of purchase orders for each department. The usage of service by the two divisions is as follows:

  Tech Support Purchasing
Consumer Division 375 computers 1,960 purchase orders
Commercial Division 225 3,640
Total 600 computers 5,600 purchase orders

The service department charges of the Tech Support Department and the Purchasing 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 $7,430,000 $6,184,000
Cost of goods sold 4,123,000 3,125,000
Operating expenses 1,465,000 1,546,000

Prepare the divisional income statements for the two divisions.

To determine

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

To prepare: The income statements for CR Division and CL Division

Explanation of Solution

Prepare divisional income statements for CR Division and CL Division.

Y Technology
Divisional Income Statements
For the Year Ended December 31, 2016
  CR Division CL Division
Sales   $7,430,000   $6,184,000
Cost of goods sold 4,123,000 3,125,000
Gross profit   3,307,000   3,059,000
Operating expenses   1,465,000   1,546,000
Income from operations before service department charges   1,842,000   1,513,000
Service department charges:    
   Tech Support department $322,500 $193,500
   Purchasing department 31,360 353,860 58,240 251,740
Income from operations $1,488,140 $1,261,260

Table (1)

Working Notes:

Determine the service charges to be charged for tech support department of CR Division.

Tech support department}{Number of computers used by tech support of CR Division× Rate per computer used}={Number of computers used by tech support of CR Division × Tech support department expensesTotal number of computers used by tech support deparment}= 375 computers × $516,000600 computers= $322,500

Determine the service charges to be charged for tech support department of CL Division

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Chapter 24 Solutions

Accounting (Text Only)
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Ch. 24 - Budgetary performance for cost center Caroline...Ch. 24 - Budgetary performance for cost center Conley...Ch. 24 - Service department charges The centralized...Ch. 24 - Service department charges The centralized...Ch. 24 - Income from operations for profit center Using the...Ch. 24 - Income from operations for profit center Using the...Ch. 24 - Profit margin, investment turnover, and ROI Cash...Ch. 24 - Profit margin, investment turnover and ROI Briggs...Ch. 24 - Residual income The Consumer Division of Hernandez...Ch. 24 - Residual income The Commercial Division of Herring...Ch. 24 - Transfer pricing The materials used by the North...Ch. 24 - Transfer pricing The materials used by the...Ch. 24 - Budget performance reports for cost centers...Ch. 24 - Divisional income statements The following data...Ch. 24 - Service department charges and activity bases For...Ch. 24 - Activity bases for service department charges For...Ch. 24 - Service department charges In divisional income...Ch. 24 - Service department charges and activity bases...Ch. 24 - Divisional income statements with service...Ch. 24 - Corrections to service department charges for a...Ch. 24 - Profit center responsibility reporting XSport...Ch. 24 - Rate of return on investment The income from...Ch. 24 - Residual income Based on the data in Exercise...Ch. 24 - Determining missing items in return computation...Ch. 24 - Profit margin, investment turnover, and rate of...Ch. 24 - Rate of return on investment The Walt Disney...Ch. 24 - Determining missing items in return and residual...Ch. 24 - Determining missing items from computations Data...Ch. 24 - Rate of return on investment, residual income for...Ch. 24 - Balanced scorecard for a service company American...Ch. 24 - Building a balanced scorecard Hit-n-Kun Inc. owns...Ch. 24 - Decision on transfer pricing Materials used by the...Ch. 24 - Decision on transfer pricing Based on XPort...Ch. 24 - Budget performance report for a cost center...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and rate of return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Transfer pricing Garcon Inc. manufactures...Ch. 24 - Budget performance report for a cost center The...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and rate of return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Transfer pricing Exoplex Industries Inc. is a...Ch. 24 - Ethics and professional conduct in business...Ch. 24 - Service department charges The Customer Service...Ch. 24 - Evaluating divisional performance The three...Ch. 24 - Evaluating division performance over time The...Ch. 24 - Evaluating division performance Last Resort...

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