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Hutchinson Sports Co. operates two divisions-the Action Sports Division and the Team Sports Division. The following income and expense accounts were provided as of
Hutchinson Sports Co. operates two divisions-the Action Sports Division and the Team Sports Division. The following income and expense accounts were provided as of November 30, 20Y1, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded: Sales-Action Sports (45) Division Sales-Team Sports (TS) Division Cost of Goods Sold-Action Sports (AS) Division Cost of Goods Sold-Team Sports (TS) Division Sales Expense-Action Sports (AS) Division Sales Expense-Team Sports (TS) Division Administrative Expense-Action Sports (AS) Division $9.250,000 15.300,000 5.350,000 9,600,000 750,000 1,050,000 625,000 Administrative Expense-Team Sports (TS) Division Advertising Expense 725,000 1.600,000 Transportation Expense 327,450 Accounts Receivable Collection Expense Warehouse Expense 200,250 400,000 The bases to be used in allocating expenses, together with other essential information, are as follows: a. Advertising expense-incurred at headquarters, charged back to divisions on the basis of usage: Action Sports Division, $600,000; Team Sports Division, $900,000. b. Transportation expense-charged back to divisions at a charge rate of $18.50 per bill of lading: Action Sports Division, 7,000 bills of lading; Team Sports Division, 10,700 bills of lading. c. Accounts receivable collection expense-incurred at headquarters, charged back to divisions at a charge rate of $9.00 per invoice: Action Sports Division, 16,000 sales invoices; Team Sports Division, 6,250 sales invoices. d. Warehouse expense-charged back to divisions on the basis of floor space used in storing division products: Action Sports Division, 60,000 square feet; Team Sports Division, 40,000 square feet. Prepare divisional income statements with two column headings: Action Sports Division and Team Sports Division. Provide supporting schedules for determining service department charges. ANSWER Check Figure: Operating income, Action Sports Division, $1,411,500
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