10.4.6

Horton Technology has two divisions, Consumer and Commercial, and two corporate support departments, Tech Services and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows:

Tech Services Department	$1,104,000
Purchasing Department	489,000
Other corporate administrative expenses	685,000
Total expense	$2,278,000

The other corporate administrative expenses include officers salaries and other expenses required by the corporation. The Tech Services Department allocates costs to the divisions based on the number of computers in the department, and the Purchasing Department allocates costs to the divisions based on the number of purchase orders for each department. The services used by the two divisions are as follows:

	Tech Services		Purchasing
Consumer Division	490	computers	5,700	purchase orders
Commercial Division	310		10,600
Total	800	computers	16,300	purchase orders

The support department allocations of the Tech Services Department and the Purchasing Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows:

	Consumer		Commercial
Revenues	$9,963,200		$8,642,800
Cost of goods sold	5,535,100		4,364,200
Operating expenses	1,954,300		2,160,500

Prepare the divisional income statements for the two divisions. Do not round your interim calculations.

Horton Technology
Divisional Income Statements
For the Year Ended December 31, 20Y7
		Consumer Division		Commercial Division
Revenues		$__		$___
Cost of goods sold		___		___
Gross profit		$___		$___
Operating expenses		$___		$____
Operating income before support department allocations		$___		$___
Support department allocations:
Tech service department		$__		$___
Purchasing department		___		___
Total support department allocations		$___		$___
Operating income		$___		$___

The operating income and the amount of invested assets in each division of Horton Tech. are as follows:

	Operating income		Invested Assets
Retail Division	$55,100		$290,000
Commercial Division	68,200		310,000
Internet Division	70,000		500,000

Assume that management has established a 12% minimum acceptable return for invested assets.

a. Determine the residual income for each division.

	Retail Division			Commercial Division			Internet Division
Operating income	$55,100			$68,200			$70,000
Minimum acceptable operating income as a percent of invested assets	___			___			___
Residual income	$___			$___			$___