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	$1,238,400
Purchasing Department	223,500
Other corporate administrative expenses	629,000
Total corporate expense	$2,090,900

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	440	computers	5,200	purchase orders
Commercial Division	280		9,700
Total	720	computers	14,900	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	$9,817,400		$7,267,200
Cost of goods sold	5,454,100		3,669,600
Operating expenses	1,925,700		1,816,600

Prepare the divisional income statements for the two divisions. Do not round your interim calculations.

Yozamba Technology
Divisional Income Statements
For the Year Ended December 31, 20Y7
		Consumer Division		Commercial Division
Revenues		$		$
Cost of goods sold
Gross profit		$		$
Operating expenses
Income from operations before service department charges		$		$
Service department charges:
Tech support department		$		$
Purchasing department
Total service department charges		$		$
Income from operations		$		$

Answer 1

YOZAMBA TECHNOLOGY
Divisional Income Statements
For the Year Ended December 31, 20Y7
	Consumer Division	Commercial Division
Revenues	9817400	7267200
Cost of goods sold	5454100	3669600
Gross profit	4363300	3597600
Operating expenses	1925700	1816600
Income from operations before service department charges	2437600	1781000
Service department charges:
Tech Support Department	756800	481600
Purchasing Department	78000	145500
Total service department charges	834800	627100
Income from operations	1602800	1153900
Workings:
	Consumer Division	Commercial Division
Service department charges:
Tech Support Department	=1238400*440/720	=1238400*280/720
Purchasing Department	=223500*5200/14900	=223500*9700/14900