Question

Profit Center Responsibility Reporting

XSport 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, 20Y9, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division	$27,930,000
Sales—Summer Sports Division	30,856,000
Cost of Goods Sold—Winter Sports Division	16,758,000
Cost of Goods Sold—Summer Sports Division	17,822,000
Sales Expense—Winter Sports Division	4,788,000
Sales Expense—Summer Sports Division	4,256,000
Administrative Expense—Winter Sports Division	2,793,000
Administrative Expense—Summer Sports Division	2,739,800
Advertising Expense	937,000
Transportation Expense	574,200
Accounts Receivable Collection Expense	244,800
Warehouse Expense	2,660,000

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

1. Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $440,000; Summer Sports Division, $497,000.
2. Transportation expense—charged back to divisions at a charge rate of $18 per bill of lading: Winter Sports Division, 15,200 bills of lading; Summer Sports Division, 16,700 bills of lading.
3. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $8 per invoice: Winter Sports Division, 14,100 sales invoices; Summer Sports Division, 16,500 sales invoices.
4. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 120,000 square feet; Summer Sports Division, 160,000 square feet.

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

XSport Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division
Sales	$	$
Cost of goods sold
Gross profit	$	$
Divisional selling and administrative expenses:
Divisional selling expenses	$	$
Divisional administrative expenses
Total divisional selling and administrative expenses	$	$
Income from operations before service department charges	$	$
Service department charges:
Advertising expense	$	$
Transportation expense
Accounts receivable collection expense
Warehouse expense
Total service department charges	$	$
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.

XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y9
	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	$	$	$

Answer 1

XSport Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division
Sales	27930000	30856000
Cost of goods sold	16758000	17822000
Gross profit	11172000	13034000
Divisional selling and administrative expenses:
Divisional selling expenses	4788000	4256000
Divisional administrative expenses	2793000	2739800
Total divisional selling and administrative expenses	7581000	6995800
Income from operations before service department charges	3591000	6038200
Service department charges:
Advertising expense	440000	497000
Transportation expense	273600	300600
Accounts receivable collection expense	112800	132000
Warehouse expense	1140000	1520000
Total service department charges	1966400	2449600
Income from operations	1624600	3588600
2
XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division	Total
Advertising expense	440000	497000	937000
Transportation rate per bill of lading	18	18
Number of bills of lading	15200	16700
Transportation expense	273600	300600	574200
Accounts receivable collection rate	8	8
Number of sales invoices	14100	16500
Accounts receivable collection expense	112800	132000	244800
Warehouse rate per sq. ft.	9.5	9.5
Number of square feet	120000	160000
Warehouse expense	1140000	1520000	2660000