Question

b. Delen OB].3 ercial income rations, 5X 8-7 Divisional income statements with service department charges Yozamba Technology has two divisions, Consumer and Commercial, and two corne service departments, Tech Support and Purchasing. The corporate expenses for the vi ended December 31, 2016, are as follows: $ 516,000 Tech Support Department 89,600 Purchasing Department 560,000 Other corporate administrative expenses Total corporate expense $1,165,600 The other corporate administrative expenses include officers salaries and other ex. penses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Purchasing Department charges divisions for services, based on the number of purchase orders for each department. The usage of service by the two divisions is as follows: Consumer Division Commercial Division Total Tech Support 375 computers 225 600 computers Purchasing 1,960 purchase orders 3,640 5,600 purchase orders The service department charges of the Tech Support Department and the Purchasing Department are considered controllable by the divisions. Corporate administrative e penses are not considered controllable by the divisions. The revenues, cost of goods solo and operating expenses for the two divisions are as follows: Revenues Cost of goods sold Operating expenses Consumer $7,430,000 4,123,000 1,465,000 Commercial $6,184,000 3,125,000 1,546,000 Prepare the divisional income statements for the two divisions.

Answer 1

Solution:

Yozamba Technology

Divisional Income Statements

For the Year Ended December 31, 2016

	Consumer Division		Commercial Division
Sales		$7,430,000		$6,184,000
Cost of goods sold		$4,123,000		$3,125,000
Gross profit		$3,307,000		$3,059,000
Operating expenses		$1,465,000		$1,546,000
Income from operations before service department charges		$1,842,000		$1,513,000
Service department charges:
Tech.support department	$322,500		$193,500
Purchasing department	$31360	$353,860	$58,240	$251,740
Income from operations		$1,488,140		$1,261,260

Explanation:

For Consumer Division ( Tech support department)

Tech support department = { Number of computers used by tech support of CR division × rate per computer used }

= {Number of computers used by tech support of CR division × Tech support department expenses / Total number of computers used by tech support department}

= 375 computers ×$516000 / 600 computers

=$322,500

For Commercial Division:(tech support department)

Tech support department = {Number of computers used by tech support of Commercial Division × rate per computer used}

={Number of computers used by tech support of Commercial Division ×Tech support department expenses / Total number of computers used by the support department}

= 225 computers × $516,000 / 600 computers

=$193,500

For Consumer Division (purchasing department)

Purchasing department = {Number of computers order by purchasing of Consumer Division × rate per computer order}

= { Number of computers order by purchasing of Consumer Division × Purchasing department expenses / Total number of computers order by purchasing department}

1,960 ×$89,600/5,600

= $31,360

For commercial division (purchasing department)

Purchasing department ={ Number of computers order by purchasing of Commercial Division × rate per computer order}

= { Number of computers order by purchasing of Commercial Division × purchasing department expenses / Total number of computers order by purchasing department}

3,640 × $89,600/5,600

= $58,240