Watson Company pays a bonus to any of its five division managers who increase their percentage of income to sales over that of the year before. The manager of Division A is displeased because of the results of operations of the line for the current year. The division showed a decrease in net income percentage, as follows:

The items of allocated costs and expenses represent general costs and expenses of the company that were allocated to the divisions.
Required:
a. Prepare a statement that shows more clearly the performance of Division A.
b. Comment on the method used by the company to calculate bonuses.

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Current Year Last Year Net sales Cost of goods sold: $252,000 $216,000 $29,000 Division fixed costs Allocated costs Variable costs $29,000 40,000 72,000141,000 19,000 72,000 120,000 3 Gross margin Selling and administrative expense: 111,000 96,000 Division fixed expenses Allocated expenses Variable expenses 25,000 45,000 22,000 92,000 22,000 37,000 19,000 78,000 Income $ 19,000 $ 18,000