Question

Profit Center Responsibility Reporting

Championship Sports Inc. 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	$8,900,000
Sales—Summer Sports Division	16,400,000
Cost of Goods Sold—Winter Sports Division	5,000,000
Cost of Goods Sold—Summer Sports Division	9,000,000
Sales Expense—Winter Sports Division	650,000
Sales Expense—Summer Sports Division	1,200,000
Administrative Expense—Winter Sports Division	800,000
Administrative Expense—Summer Sports Division	1,450,000
Advertising Expense	1,090,000
Transportation Expense	192,000
Accounts Receivable Collection Expense	68,000
Warehouse Expense	1,800,000

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

1. Advertising expense—incurred at headquarters, allocated to divisions on the basis of usage: Winter Sports Division, $375,000; Summer Sports Division, $715,000.
2. Transportation expense—allocated to divisions at a rate of $4.00 per bill of lading: Winter Sports Division, 17,500 bills of lading; Summer Sports Division, 30,500 bills of lading.
3. Accounts receivable collection expense—incurred at headquarters, allocated to divisions at a rate of $1.00 per invoice: Winter Sports Division, 25,000 sales invoices; Summer Sports Division, 43,000 sales invoices.
4. Warehouse expense—allocated to divisions on the basis of floor space used in storing division products: Winter Sports Division, 60,000 square feet; Summer Sports Division, 90,000 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Round your interim calculations to two decimal places, if required.

Championship Sports Inc.
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	$	$
Operating income before support department allocations	$	$
Support department allocations:
Advertising expense	$	$
Transportation expense
Accounts receivable collection expense
Warehouse expense
Total support department allocations	$	$
Operating income	$	$

Provide supporting calculations for support department allocations. If required, round per unit amounts to two decimal places and final answers to the nearest dollar.

Championship Sports Inc.
Support Department Allocations
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	8900000	16400000
Cost of goods sold	5000000	9000000
Gross profit	3900000	7400000
Divisional selling and administrative expenses:
Divisional selling expenses	650000	1200000
Divisional administrative expenses	800000	1450000
Total divisional selling and administrative expenses	1450000	2650000
Income from operations before service department charges	2450000	4750000
Service department charges:
Advertising expense	375000	715000
Transportation expense	70000	122000
Accounts receivable collection expense	25000	43000
Warehouse expense	720000	1080000
Total service department charges	1190000	1960000
Income from operations	1260000	2790000
2
XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division	Total
Advertising expense	375000	715000	1090000
Transportation rate per bill of lading	4	4
Number of bills of lading	17500	30500
Transportation expense	70000	122000	192000
Accounts receivable collection rate	1	1
Number of sales invoices	25000	43000
Accounts receivable collection expense	25000	43000	68000
Warehouse rate per sq. ft.	12	12
Number of square feet	60000	90000
Warehouse expense	720000	1080000	1800000