Question
Divisional income statements with support department allocations Horton Technology has two divisions, Consumer and Commercial, and two corporate support departments, Tech Services and Purchasing. The
Divisional income statements with support department allocations
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:
Line Item Description | Amount |
---|---|
Tech Services Department | $889,000 |
Purchasing Department | 228,000 |
Other corporate administrative expenses | 480,000 |
Total expense | $1,597,000 |
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:
Line Item Description | Tech Services | Purchasing |
---|---|---|
Consumer Division | 430 computers | 5,300 purchase orders |
Commercial Division | 270 | 9,900 |
Total | 700 computers | 15,200 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:
Line Item Description | Consumer | Commercial |
---|---|---|
Revenues | $7,357,500 | $5,694,600 |
Cost of goods sold | 4,087,500 | 2,875,500 |
Operating expenses | 1,443,200 | 1,423,500 |
Prepare the divisional income statements for the two divisions. Do not round your interim calculations.
Line Item Description | Consumer Division | Commercial Division |
---|---|---|
Gross profitCashOperating expensesOperating incomeRevenuesRevenues | $Revenues | $Revenues |
CashCost of goods soldGross profitOperating incomeTech service departmentCost of goods sold | Cost of goods sold | Cost of goods sold |
CashGross profitLoss from operationsOperating expensesRevenuesGross profit | $Gross profit | $Gross profit |
CashLoss from operationsOperating expensesOperating incomePurchasing departmentOperating expenses | Operating expenses | Operating expenses |
Operating income before support department allocations | $Operating income before support department allocations | $Operating income before support department allocations |
Support department allocations: | ||
CashCost of goods soldOperating expensesOperating incomeTech service departmentTech service department | $Tech service department | $Tech service department |
CashGross profitOperating expensesOperating incomePurchasing departmentPurchasing department | Purchasing department | Purchasing department |
Total support department allocations | $Total support department allocations | $Total support department allocations |
Gross profitOperating incomeOperating income before service department chargesLoss from operationsOperating income | $Operating income | $Operating income |
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