Question

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	$492,000
Purchasing Department	75,600
Other corporate administrative expenses	575,000
Total corporate expense	$1,142,600

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	340 computers	1,930 purchase orders
Commercial Division	260	3,470
Total	600 computers	5,400 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	$7,460,000	$6,180,000
Cost of goods sold	4,112,000	3,122,500
Operating expenses	1,462,000	1,549,500

Required:

Prepare the divisional income statements for the two divisions. Refer to the list of Label and Amount Descriptions for the exact wording of the answer choices for text entries. A colon (:) will fill in where needed.

Answer 1

	YOZAMBA TECHNOLOGY
	Divisional Income Statements
	For the Year Ended December 31, 20Y7
	Consumer Division	Commercial Division
Revenues	7460000	6180000
Cost of goods sold	4112000	3122500
Gross profit	3348000	3057500
Operating expenses	1462000	1549500
Income from operations before service department charges	1886000	1508000
Service department charges:
Tech Support Department	278800	213200
Purchasing Department	27020	48580
Total service department charges	305820	261780
Income from operations	1580180	1246220
Workings:
Service department charges:
Tech Support Department
Consumer Division=492000/600*340 = $278800
Commercial Division=492000/600*260 = $213200
Purchasing Department
Consumer Division= 75600/5400*1930 =$27020
Commercial Division= 75600/5400*3470 =$48580