Profit Center Responsibility Reporting O\'Neill Sporting Goods Co. operates two

Question

Profit Center Responsibility Reporting

O'Neill 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 June 30, 2014, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded and posted:

The bases to be used in allocating expenses, together with other essential information, are as follows:

Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $488,000; Summer Sports Division, $551,000.

Transportation expense—charged back to divisions at a charge rate of $16 per bill of lading: Winter Sports Division, 14,300 bills of lading; Summer Sports Division, 15,700 bills of lading.

Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $7 per invoice: Winter Sports Division, 13,300 sales invoices; Summer Sports Division, 15,600 sales invoices.

Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 130,000 square feet; Summer Sports Division, 170,000 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Do not round your interim calculations.

O'Neill Sporting Goods Co.

Divisional Income Statements

For the Year Ended June 30, 2014

Winter Sports Division

Summer Sports Division

Sales

$  

$  

Cost of goods sold

  

  

Gross profit

$  

$  

Divisional selling expenses

$  

$  

Divisional administrative expenses

  

  

$  

$  

Income from operations before service department charges

$  

$  

Less service department charges:

Advertising expense

$  

$  

Transportation expense

  

  

Accounts receivable collection expense

  

  

Warehouse expense

  

  

Total

$  

$  

Income from operations

$  

$  

Provide supporting schedules for determining service department charges. If required, round per unit amounts to two decimal places and final answers to the nearest dollar.

O'Neill Sporting Goods Co.

Supporting Schedule

For the Year Ended June 30, 2014

Winter Sports Division

Summer Sports Division

Total

Advertising expense

$  

$  

$  

Transportation rate per bill of lading

$  

$  

Number of bills of lading

  

  

Transportation expense

$  

$  

$  

Accounts receivable collection rate

$  

$  

Number of sales invoices

  

  

Accounts receivable collection expense

$  

$  

$  

Warehouse rate per sq. ft.

$  

$  

Number of square feet

  

  

Warehouse expense

$  

$  

$  

Sales-Winter Sports Division $25,200,000 Sales-Summer Sports Division 27,840,000 Cost of Goods Sold—Winter Sports Division 15,120,000 Cost of Goods Sold—Summer Sports Division 16,080,000 Sales Expense—Winter Sports Division 4,320,000 Sales Expense—Summer Sports Division 3,840,000 Administrative Expense—Winter Sports Division 2,520,000 Administrative Expense—Summer Sports Division 2,472,000 Advertising Expense 1,039,000 Transportation Expense 480,000 Accounts Receivable Collection Expense 202,300 Warehouse Expense 2,400,000

Explanation / Answer

For the Year Ended June 30, 2014

For the Year Ended June 30, 2014 Winter Sports Division Summer Sports Division Sales 2,52,00,000 2,78,40,000 Cost of goods sold 1,51,20,000 1,60,80,000 Gross profit 1,00,80,000 1,17,60,000 Divisional selling expenses 43,20,000 38,40,000 Divisional administrative expenses 25,20,000 24,72,000 Income from operations before service department charges 32,40,000 54,48,000 Less service department charges: Advertising expense 4,88,000 5,51,000 Transportation expense 2,28,800 2,51,200 Accounts receivable collection expense 93,100 1,09,200 Warehouse expense 10,40,000 13,60,000 Total 18,49,900 22,71,400 Income from operations 13,90,100 31,76,600 Supporting Schedule

For the Year Ended June 30, 2014

Winter Sports Division Summer Sports Division Total Advertising expense 4,88,000 5,51,000 10,39,000 Transportation rate per bill of lading 16 16 Number of bills of lading 14,300 15,700 Transportation expense 2,28,800 2,51,200 4,80,000 Accounts receivable collection rate 7 7 Number of sales invoices 13,300 15,600 Accounts receivable collection expense 93,100 1,09,200 2,02,300 Warehouse rate per sq. ft. 24,00,000/(1,30,000+1,70,000) 24,00,000/(1,30,000+1,70,000) Number of square feet 1,30,000 1,70,000 Warehouse expense 10,40,000 13,60,000 24,00,000

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