Question

Glades Sporting Goods Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y8, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division	$10,505,000
Sales—Summer Sports Division	13,610,000
Cost of Goods Sold—Winter Sports Division	6,260,000
Cost of Goods Sold—Summer Sports Division	7,878,000
Sales expense—Winter Sports Division	1,665,000
Sales expense—Summer Sports Division	1,884,000
Administrative Expense—Winter Sports Division	1,018,000
Administrative Expense—Summer Sports Division	1,209,600
Advertising Expense	477,700
Transportation Expense	220,800
Accounts Receivable Collection Expense	120,900
Warehouse Expense	1,164,000

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: Winter Sports Division, $217,100; Summer Sports Division, $260,600.
B.	Transportation expense—charged back to divisions at a charge rate of $8 per bill of lading: Winter Sports Division, 12,300 bills of lading; Summer Sports Division, 15,300 bills of lading.
C.	Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $5 per invoice: Winter Sports Division, 9,680 sales invoices; Summer Sports Division, 14,500 sales invoices.
D.	Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 92,000 square feet; Summer Sports Division, 102,000 square feet.

Required:

1.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Refer to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. “Less” or “Plus” and colons will automatically appear if it is required. Be sure to complete the statement heading. (You may find it useful to work the Supporting Calculations first.)

2.

Provide supporting calculations for service department charges.

2. Provide supporting calculations for service department charges.

Service Department Charges
	Winter Sports Division	Summer Sports Division	Total
Advertising expense
Transportation rate per bill of lading
× Number of bills of lading
Transportation expense
Accounts receivable collection rate
× Number of sales invoices
Accounts receivable collection expense
Warehouse rate per sq. ft.
× Number of square feet
Warehouse expense

Answer 1

XSport Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y8
	Winter Sports Division	Summer Sports Division
Sales	10505000	13610000
Cost of goods sold	6260000	7878000
Gross profit	4245000	5732000
Divisional selling and administrative expenses:
Divisional selling expenses	1665000	1884000
Divisional administrative expenses	1018000	1209600
Total divisional selling and administrative expenses	2683000	3093600
Income from operations before service department charges	1562000	2638400
Service department charges:
Advertising expense	217100	260600
Transportation expense	98400	122400
Accounts receivable collection expense	48400	72500
Warehouse expense	552000	612000
Total service department charges	915900	1067500
Income from operations	646100	1570900
XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y8
	Winter Sports Division	Summer Sports Division	Total
Advertising expense	217100	260600	477700
Transportation rate per bill of lading	8	8
X Number of bills of lading	12300	15300
Transportation expense	98400	122400	220800
Accounts receivable collection rate	5	5
X Number of sales invoices	9680	14500
Accounts receivable collection expense	48400	72500	120900
Warehouse rate per sq. ft.	6	6
X Number of square feet	92000	102000
Warehouse expense	552000	612000	1164000