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In: Accounting

Yozamba Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and...

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 $473,100
Purchasing Department 75,600
Other corporate administrative expenses 555,000
Total corporate expense $1,103,700

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 400 computers 1,960 purchase orders
Commercial Division 170 3,440
Total 570 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 $7,470,000 $6,186,000
Cost of goods sold 4,109,000 3,119,500
Operating expenses 1,466,000 1,546,000

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.

Solutions

Expert Solution

                                                                                Divisional Income Statement

Consumer Division

Commercial division

Revenues

                7,470,000

              6,186,000

Less: cost of goods sold

                4,109,000

              3,119,500

Gross profit

                3,361,000

              3,066,500

Operating expenses

                1,466,000

              1,546,000

Income from operations before service department
charges

                1,895,000

              1,520,500

Less: Service department charges

Tech support department

                     332,000

           141,100

Purchasing department

                       27,440

                    359,440

             48,160

                  189,260

Income from operations

                1,535,560

              1,331,240

Working notes:

  1. Tech support department charges

Per computer cost = 473100/570 = $ 830 per computer

Allocation as:

Consumer division = 830*400 = 332,000

Commercial division = 830 *170 = 141,100

  1. Purchasing department charges

Per order cost = 75600/5400 = $ 14 per order

Allocation as:

Consumer division = 14*1960 = 27,440

Commercial division = 14*3440 = 48,160

kindly upvote

ekkarill92 answered 11 months ago
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