Question

Arlington Clothing, Inc. shows the following information for its two divisions for year 1 Sales revenue Cost of sales Allocated corporate overhead Other general and administration Lake Region Coastal Region $4,140,000 $13.950.000 2,681,300 6.525.ee 240,400 783,000 551,900 3,753, eee Required: a. Compute divisional operating income for the two divisions, Ionore taxes b-1. What are the gross margin and operating margin percentages for both divisions? b-2. How well have these divisions performed Complete this question by entering your answers in the tabs below. Reg A Reg B1 Reg B2 Compute divisional operating income for the tive divisions. Ignore taxes. (Enter your answers in thousands of dollars rounded to 1 decimal place) Lake Region Coastal Region Operating income

Answer 1

A.

	Lake Region	Costal Region
Sales	4,140,000	13,050,000
Cost of goods sold	2,681,300	6,525,000
Gross Margin	1,458,700	6,525,000
Allocated corporate overhead	248,400	783,000
Other general and administration	551,500	3,753,000
Operating Income	658,800	1,989,000

	Lake Region	Costal Region
Operating Income	$          658,800	$          1,989,000

B1.

Gross margin percentage = Gross margin/ Sales

Operating margin percentage = Operating income/Sales

	Lake Region	Costal Region
Sales (b)	4,140,000	13,050,000
Cost of goods sold	2,681,300	6,525,000
Gross Margin (a)	1,458,700	6,525,000
Gross Margin Percentage (a/b)	35.23%	50.00%
Allocated corporate overhead	248,400	783,000
Other gerneal and administration	551,500	3,753,000
Operating Income ( c )	658,800	1,989,000
Operating Margin Percentage (c/b)	15.91%	15.24%

	Lake Region	Costal Region
Gross Margin Percentage (a/b)	35.23%	50.00%
Operating Margin Percentage (c/b)	15.91%	15.24%

B2. The following have divisions performed:

- Divisional income is greater in Costal Region.

- The gross margin percentage is higher in Costal region.

- Corporate overhead appears to be allocated on the basis of revenues.

- The operating margin is greater in Lake Region.

Kindly comment if you need further assistance.

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