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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Profit center responsibility reporting

 Glades Sporting Goods Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y8, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division $12,600,000
Sales—Summer Sports Division 16,300,000
Cost of Goods Sold—Winter Sports Division 7,560,000
Cost of Goods Sold—Summer Sports Division 9,454,000
Sales Expense—Winter Sports Division 2,016,000
Sales Expense—Summer Sports Division 2,282,000
Administrative Expense—Winter Sports Division 1,260,000
Administrative Expense—Summer Sports Division 1.450,700
Advertising Expense 578,000
Transportation Expense 265,660
Accounts Receivable Collection Expense 174,000
Warehouse Expense 1,540,000

 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, $252,000; Summer Sports Division, $326,000.

 b.    Transportation expense—charged back to divisions at a charge rate of $7.40 per bill of lading: Winter Sports Division, 17,200 bills of lading; Summer Sports Division, 18,700 bills of lading.

 c.    Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $6.00 per invoice: Winter Sports Division, 11,500 sales invoices; Summer Sports Division, 17,500 sales invoices.

 d.    Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 102,000 square feet; Summer Sports Division, 118,000 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.

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.

Service department charges: These are the indirect expenses incurred by profit center. These are charged for the services received by the department or division, based on the activity base of the service department.

To prepare: The income statements for WS Division and SS Division of GS Goods for the year ended December 31, 20Y8

Explanation

Prepare divisional income statements for WS Division and SS Division of GS Goods for the year ended December 31, 20Y8.

Table (1)

Working Notes:

Determine the service charges to be charged for transportation expense of WS Division.

Transportation expense}{Number of bills of lading for WS Division× Rate per bill of lading}= 17,200 bills of lading × $7.40= $127,280

Determine the service charges to be charged for transportation expense of SS Division.

Transportation expense}{Number of bills of lading for SS Division× Rate per bill of lading}= 18,700 bills of lading × $7.40= $138,380

Determine the service charges to be charged for accounts receivable collection expense of WS Division.

Accounts receivable collection expense}{Number of sales invoices for WS Division× Rate per sale invoice}= 11,500 sales invoices × $6.00= $69,000

Determine the service charges to be charged for accounts receivable collection expense of SS Division.

Accounts receivable collection expense}{Number of sales invoices for SS Division× Rate per sale invoice}= 17,500 sales invoices × $6

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