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	$22,785,000
Sales—Summer Sports Division	25,172,000
Cost of Goods Sold—Winter Sports Division	13,671,000
Cost of Goods Sold—Summer Sports Division	14,539,000
Sales Expense—Winter Sports Division	3,906,000
Sales Expense—Summer Sports Division	3,472,000
Administrative Expense—Winter Sports Division	2,278,500
Administrative Expense—Summer Sports Division	2,235,100
Advertising Expense	918,000
Transportation Expense	496,400
Accounts Receivable Collection Expense	196,000
Warehouse Expense	2,170,000

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, $431,000; Summer Sports Division, $487,000.
2. Transportation expense—charged back to divisions at a charge rate of $17 per bill of lading: Winter Sports Division, 13,900 bills of lading; Summer Sports Division, 15,300 bills of lading.
3. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $7 per invoice: Winter Sports Division, 12,900 sales invoices; Summer Sports Division, 15,100 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

						Winter Sports Division			Summer Sports Division
Sales						$           22,785,000.00			$             25,172,000.00
Cost of goods sold						$           13,671,000.00			$             14,539,000.00
Gross profit						$             9,114,000.00			$             10,633,000.00
Divisional selling and administrative expenses:
Divisional selling expenses						$             3,906,000.00			$                3,472,000.00
Divisional administrative expenses						$             2,278,500.00			$                2,235,100.00
Total divisional selling and administrative expenses						$             6,184,500.00			$                5,707,100.00
Income from operations before service department charges						$             2,929,500.00			$                4,925,900.00
Service department charges:
Advertising expense						$                431,000.00			$                   487,000.00
Transportation expense						$                236,300.00			$                   260,100.00
Accounts receivable collection expense						$                   90,300.00			$                   105,700.00
Warehouse expense						$                930,000.00			$                1,240,000.00
Total service department charges						$             1,687,600.00			$                2,092,800.00
Income from operations						$             1,241,900.00			$                2,833,100.00

Workings:

						Winter Sports Division			Summer Sports Division			Total
Advertising expense						$ 431,000.00			$     487,000.00			$     918,000.00
Transportation rate per bill of lading						$           17.00			$               17.00
Number of bills of lading						13900			15300
Transportation expense						$ 236,300.00			$     260,100.00			$     496,400.00
Accounts receivable collection rate						$             7.00			$                 7.00
Number of sales invoices						12900			15100
Accounts receivable collection expense						$   90,300.00			$     105,700.00			$     196,000.00
Warehouse rate per sq. ft.						$             7.75			$                 7.75
Number of square feet						120000			160000			280000
Warehouse expense						$ 930,000.00			$ 1,240,000.00			$ 2,170,000.00