Question

Use the data below for the Coffee & Cocoa Company.

		A Region		B Region		C Region
Sales		$600,000		$900,000		$300,000
Cost of goods sold		200,000		350,000		190,000
Selling expenses		150,000		275,000		100,000
Support department expenses:
Purchasing						120,000
Payroll accounting						80,000

Determine the divisional operating income for the three regions by allocating the support department expenses proportional to the sales of the regions. For interim calculations, do not round. Round final allocation amounts to the nearest whole dollar.

Answer 1

Answer:

	A Region	B Region	C Region
Sales	$ 600,000	$ 900,000	$ 300,000
Less: Cost of goods sold	$ 200,000	$ 350,000	$ 190,000
Gross Profit	$ 400,000	$ 550,000	$ 110,000
Less: Selling expenses	$ 150,000	$ 275,000	$ 100,000
Less: Support department expenses (120000 + 80000)	$   66,667	$ 100,000	$   33,333
Net Divisional Operating Income	$ 183,333	$ 175,000	$ (23,333)

Calculation:

	A Region	B Region	C Region
Support department expenses (120000 + 80000)	=200000/1800000*600000	=200000/1800000*900000	=200000/1800000*300000

In case of any doubt, please feel free to comment.