Outdoor Athletic Equipment Co. operates two divisions-the Winter Sports Division
ID: 2390372 • Letter: O
Question
Outdoor Athletic Equipment 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 June 30, 2008, the end of the current fiscal year, after all adjustments, including those for inventories,were recorded and posted:
Sales-Winter Sports (WS) Division.......................$950,000
Sales-Summer Sports (SS) Division......................1,437,500
Cost of Goods Sold-Winter Sports (WS) Division.......512,500
Cost of Goods Sold-Summer Sports (SS) Division......687,500
Sales Expense-Winter Sports (WS) Division............150,000
Sales Expense-Summer Sports (SS) Division.............205,000
Administrative Expense-Winter Sports (WS) Division...97,000
Administrative Expense-Summer Sports (SS) Division...128,000
Advertising Expense .........................................64,500
Transportation Expense......................................100,700
Accounts Receivable Collection Expense..................58,100
Warehouse Expense..........................................120,000
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, $28,000; Summer Sports Division, $36,500.
(b) Transportation Expense-charged back to divisions at a transfer price of $7.60 per bill of lading: Winter Sports Division, 6,000 bills of lading; Summer Sports Division, 7,250 bills of lading.
(c) Accounts Receivable collection expense-incurred at headquarters, charged back to divisions at a transfer price of $5.60 per invoice: Winter Sports Division, 4,500 sales invoices; Summer Sports Division, 5,875 sales invoices.
(d) Warehouse expense-charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 25,000 square feet; Summer Sports Division, 12,500 square feet.
Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Provide Supporting schedules for determining service department charges.
Explanation / Answer
Outdoor Athletic Equipment Co.
Income Statement
For the year ended June 30, 2008
Winter Sports Division
Summer Sports Division
Sales
$ 950,000
$ 1,437,500
Less: Cost of Goods Sold
512500
687,500
Gross Margin
437,500
750,000
Operating Expenses
Sales Expense
150,000
205,000
Administrative Expense
97,000
128,000
Advertising Expense
28,000
36,500
Transportation Expense
45,600
55,100
Account Receivable Collection Expense
25,200
32,900
Warehouse Expense
80,000
40,000
Total Operating Expense
425,800
497,500
Net Operating Income
11,700
252,500
Supporting Schedule
Winter Sports Division
Summer Sports Division
Tranportation Expense
7.60 * 6,000 = 45,600
7.60 * 7,250 = 55,100
Account Receivable Collection Expense
5.60 * 4,500 = 25,200
5.60 * 5,875 = 32,900
Warehouse Expense
120,000/(25,000 + 12,500)
120,000/(25,000 + 12,500)
*25,000 = 80,000
*12,500 = 40,000
Winter Sports Division
Summer Sports Division
Sales
$ 950,000
$ 1,437,500
Less: Cost of Goods Sold
512500
687,500
Gross Margin
437,500
750,000
Operating Expenses
Sales Expense
150,000
205,000
Administrative Expense
97,000
128,000
Advertising Expense
28,000
36,500
Transportation Expense
45,600
55,100
Account Receivable Collection Expense
25,200
32,900
Warehouse Expense
80,000
40,000
Total Operating Expense
425,800
497,500
Net Operating Income
11,700
252,500
Supporting Schedule
Winter Sports Division
Summer Sports Division
Tranportation Expense
7.60 * 6,000 = 45,600
7.60 * 7,250 = 55,100
Account Receivable Collection Expense
5.60 * 4,500 = 25,200
5.60 * 5,875 = 32,900
Warehouse Expense
120,000/(25,000 + 12,500)
120,000/(25,000 + 12,500)
*25,000 = 80,000
*12,500 = 40,000
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