Question

Using the data below for the Ace Guitar Company:

	A Region		B Region
Sales	$792,000		$528,000
Cost of goods sold	301,000		200,600
Selling expenses	190,100		126,700
Service department expenses
Purchasing				$221,800
Payroll accounting				147,800

Allocate service department expenses proportional to the sales of each region. Determine the divisional income from operations for the A and B regions. For interim calculations, round percentages to one decimal place.

A Region	$
B Region	$

Answer 1

Solution :

Particulars	A Region	B Region
Sales	$ 792,000	$ 528,000
Less : Cost of Goods Sold	$ 301,000	$ 200,600
Gross Profit	$ 491,000	$ 327,400
Less : Selling Expenses	$ 190,100	$ 126,700
Less : Service Department Exenses :
Purchasing	$ 133,080	$ 88,720
Payroll Accounting	$ 88,680	$ 59,120
Divisional Income	$ 79,140	$ 52,860

Working :

Allocation of Support Department Expenses :

Particulars	A Region	B Region	Total
Sales	$ 792,000	$ 528,000	$ 1,320,000
% of Sales	$ 792,000 / $ 1,320,000 = 60%	$ 528,000 / $ 1,320,000 = 40%
Allocation of Purchasing Department Expenses	$ 221,800 * 60% = $ 133,080	$ 221,800 * 40% = $ 88,720	$ 221,800
Payroll Accounting	$ 147,800 * 60% = $ 88,680	$ 147,800 * 40% = $ 59,120	$ 147,800

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