Question

Divisional Income Statements with Service Department Charges

Yozamba Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows:

Tech Support Department	$516,000
Purchasing Department	89,600
Other corporate administrative expenses	560,000
Total corporate expense	$1,165,600

The other corporate administrative expenses include officers' salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Purchasing Department charges divisions for services, based on the number of purchase orders for each department. The usage of service by the two divisions is as follows:

	Tech Support		Purchasing
Consumer Division	375	computers	1,960	purchase orders
Commercial Division	225		3,640
Total	600	computers	5,600	purchase orders

The service department charges of the Tech Support 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	$7,430,000		$6,184,000
Cost of goods sold	4,123,000		3,125,000
Operating expenses	1,465,000		1,546,000

Prepare the divisional income statements for the two divisions. Round your interim calculations to three decimal places, if required.

Yozamba Technology
Divisional Income Statements
For the Year Ended December 31, 20Y7
		Consumer Division		Commercial Division
		$		$
		$		$
Income from operations before service department charges		$		$
Service department charges:
		$		$
Total service department charges		$		$
		$

Answer 1

Prepare the divisional income statements for the two divisions. Round your interim calculations to three decimal places, if required.

Yozamba Technology
Divisional Income Statements
For the Year Ended December 31, 20Y7
		Consumer Division		Commercial Division
Revenue		$7430000		$6184000
Cost of goods sold		4123000		3125000
Gross profit		$3307000		$3059000
Operating expense		1465000		1546000
Income from operations before service department charges		$1842000		$1513000
Service department charges:
Tech support Department		$516000/600*375 = 322500		$193500
Purchasing		89600/5600*1960 = 31360		58240
Total service department charges		$353860		$251740
Income from operation		1488140		1261260
		$