Question

Income from Operations for Profit Center The centralized computer technology department of Hardy Company has expenses of $320,000. The department has provided a total of 4,000 hours of service for the period. The Retail Division has used 2,750 hours of computer technology service during the period, and the Commercial Division has used 1,250 hours of computer technology service. Additional data for the two divisions is following below: Retail Division Commercial Division Sales $2,150,000 $1,200,000 Cost of goods sold 1,300,000 800,000 Selling expenses 150,000 175,000 Determine the divisional income from operations for the Retail Division and the Commercial Division. Do not round interim calculations.

Answer 1

Hardy Company Divisional Income from Operations Retail Commercial Division Division Sales $ 2,150,000 $ 1,200,000 Less: Cost of Goods Sold $(1,300,000) $ (800,000) Gross Margin $ 850,000 $ 400,000 Less: Selling expenses $ (150,000) $ (175,000) Income from Operations before allocation of Service department expenses $ 700,000 $ 225,000 Less : Service Department expenses $ (220,000) $ (100,000) Income from Operations $ 480,000 $ 125,000

Working Notes: Allocation of service deparment expenses on the basis of no. of hours served. No. of Hours used Service charge per hour Total service deparment expense Retail Commercial Division Division 2750 1250 $ 80 $ 80 $ 220,000 $ 100,000 Service charge per hour = Total expenses / total hours = $ 320000 / 4000 = $ 80.00