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 corporate expenses for the year ended December 31, 20Y7, are as follows:

Tech Services Department	$998,200
Purchasing Department	400,000
Other corporate administrative expenses	601,000
Total expense	$1,999,200

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	380	computers	5,600	purchase orders
Commercial Division	240		10,400
Total	620	computers	16,000	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	$8,841,600		$7,490,800
Cost of goods sold	4,912,000		3,782,500
Operating expenses	1,734,300		1,872,500

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
		$		$
		$		$
Operating income before support department allocations		$		$
Support department allocations:
		$		$
Total support department allocations		$		$
		$		$

Answer 1

Ans: Horton Technology Divisional Income Statements

Particulars	Consumer division	Commercial Division
Revenues	8,841,600	7,490,800
Cost of Goods Sold	(4,912,000)	(3,782,500)
Gross Profit	3,929,600	3,708,300
Operating Expenses	1.734,300	1,872,500
Operating income before support department allocations	2,195,300	1,835,800
Support department allocations:
Tech service department{Expenses*division/total}	611,800**	386,400
Purchasing department{expenses*division/total}	140,000	260,000
Total Support department allocations	751,800	646,400

**=> 998,200*380/620

=> 611,800