As a part of an employment interview, you are given the partial income statement

Question

As a part of an employment interview, you are given the partial income statement and selected financial ratios shown for Sneaky Pete’s, a chain of western stores. Sneaky Pete’s is organized into two divisions: Mountain and Valley. You are told that corporate overhead costs are allocated to divisions based on relative sales.

Required:

a. Complete the income statements for both divisions and the corporation as a whole. (Enter all values as positive value. Round your answers to 1 decimal place.)

Mountain Division Valley Division Corporate Sales $ $ Cost of sales Gross margin $ $ $ SG&A Allocated corporate costs 18.0 72.0 Operating income $ $ $ Tax expense (@25%) After-tax income $ $ $134.4 Gross margin percentage 66.00 % 52.50 % 56.00 % Operating margin 26.00 % 21.20 % 22.40 % Profit margin 19.50 % 15.90 % 16.80 %

Explanation / Answer

Solution a:

Particulars Mountain Division Valley Division Corporate Sales $200.00 $600.00 $800.00 Cost of Sales $68.00 $285.00 $352.00 Gross Margin $132.00 $315.00 $448.00 SG&A $62.00 $133.80 $196.80 Allocated Corporate Costs $18.00 $54.00 $72.00 Operating income $52.00 $127.20 $179.20 Tax expense (25%) $13.00 $31.80 $44.80 After tax income $39.00 $95.40 $134.40 Gross margin percentage 66.00 % 52.50 % 56.00 % Operating margin 26.00 % 21.20 % 22.40 % Profit margin 19.50 % 15.90 % 16.80 %

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