Background

Happy Tiger Limited is a company that manufactures Golf apparel. The company has established two separate divisions (segments) by product line: The Golf Shirt division and the Golf Hat division. Both divisions operate out of the same plant in Oakland, California. The Head office for Happy Tiger Limited operates out of a downtown office in San Francisco, California. All inventory produced during the month is also sold during the month.

Actual financial data for the month of JUNE has been gathered as follows:

Shirt Division Hat Division

Volume of Units Sold: 120,000 80,000

Sales Price per Unit: $30 $10

Direct Material cost per Unit: $12 $3

Direct Labour cost per Unit: $4 $3

Variable OH cost per Unit: $2 $1

The Manager in charge of the Shirt department was paid a salary of $15,000 in June. The Manager of the Hat division was paid $20,000 in June. The head of Marketing at Happy Tiger Limited was paid $12,000 in June. The Plant manager was paid $16,000 in the month of June.

Rent for the Oakland plant is $84,000 per year. Rent for the San Francisco office is $6,000 per month. There is fire insurance expense at the plant is $4,000 per month. The San Francisco office pays $4,800 per year for insurance. Commissioned sales people are paid a 5% commission on sales. The company also has to pay a royalty fee to Nike equivalent to $2.00 for every unit sold.

REQUIRED:

i) Prepare a Income Statement in the complete Contribution Margin format for Happy Tiger Limited and its TWO divisions for the month of June. Ensure you calculate the company's Operating Income (Net Operating Income on the power point slides)

ii) Assuming that Happy Tiger Limited wanted to allocate Common Fixed Costs to each division based upon the volume of units produced, how much would be allocated to each division?

Ensure you show all of your calculations and assumptions. You may use an Excel spreadsheet if you wish but it is not a requirement.