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	$35,700,000
Sales—Summer Sports Division	39,440,000
Cost of Goods Sold—Winter Sports Division	21,420,000
Cost of Goods Sold—Summer Sports Division	22,780,000
Sales Expense—Winter Sports Division	6,120,000
Sales Expense—Summer Sports Division	5,440,000
Administrative Expense—Winter Sports Division	3,570,000
Administrative Expense—Summer Sports Division	3,502,000
Advertising Expense	1,065,000
Transportation Expense	378,000
Accounts Receivable Collection Expense	212,800
Warehouse Expense	3,400,000

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, $500,000; Summer Sports Division, $565,000.
2. Transportation expense—allocated to divisions at a rate of $12 per bill of lading: Winter Sports Division, 15,000 bills of lading; Summer Sports Division, 16,500 bills of lading.
3. Accounts receivable collection expense—incurred at headquarters, allocated to divisions at a rate of $7 per invoice: Winter Sports Division, 14,000 sales invoices; Summer Sports Division, 16,400 sales invoices.
4. Warehouse expense—allocated to divisions on the basis of floor space used in storing division products: Winter Sports Division, 180,000 square feet; Summer Sports Division, 220,000 square feet.

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

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 schedules for determining 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

Championship Sports Inc.

Divisional Income Statements

For the Year Ended December 31,20Y9

Particulars	Winter Sports Division	Summer Sports Division
Sales	35,700,000	39,440,000
Costs of Goods Sold	21,420,000	22,780,000
Gross Profit	14,280,000	16,660,000
Divisional Selling and Administrative Expenses
Divisional Selling Expense	6,120,000	5,440,000
Divisional Administrative Expenses	3,570,000	3,502,000
Total Divisional Selling and Administrative Expenses	9,690,000	8,942,000
Operating Income before Support Department Allocation	4,590,000	7,718,000
Support Department Allocations
Advertising Expense	500,000	565,000
Transportation Expense	180,000	198,000
Accounts receivables Collection Expense	98,000	114,800
Warehouse Expense	1,530,000	1,870,000
Total Support Department Allocation	2,308,000	2,747,800
Operating Income	2,282,000	4,970,200

Notes :-

Gross Profit = Sales - Costs of Goods Sold

Total Divisional Selling and Administrative Expenses = Divisional Selling Expense + Divisional Administrative Expenses

Operating Income before Support Department Allocation = Gross Profit - Total Divisional Selling and Administrative Expenses

Total Support Department Allocation = Advertising Expense + Transportation Expense + Accounts Receivables Expense + Warehouse Expense

Operating Income = Operating Income before Support Department Allocation - Total Support Department Allocation

Championship Sports Inc.

Support Department Allocations

For the Year Ended December 31,20Y9

Particulars	Winter Sports Division	Summer Sports Division	Total
Advertising	500,000	565,000	1,065,000
Transportation Rate per Bill of Lading	12	12
* Number of Bill of Lading	15,000	165,000
Transportation Expense	180,000	198,000	378,000
Accounts Receivables Collection Rate	7	7
* Number of Invoices	14,000	16,400
Accounts Receivables Collection Expense	98,000	114,800	212,800
Warehouse Rate per Square Feet	8.5	8.5
* Number of Square Feet	180,000	220,000
Warehouse Expense	1,530,000	1,870,000	3,400,000

Notes

Warehouse Rate per Square Feet = 3,400,000 / 400,000 Square Feet = $ 8.5 per Square Feet