Question

In: Accounting

Wilke Realty separates its activities into two operating divisions: Rentals and Sales. In March, the firm...

Wilke Realty separates its activities into two operating divisions: Rentals and Sales.
In March, the firm spent $52,000 for general company promotions (as opposed to
advertisements for specific properties). John, the corporate controller, has decided to
allocate general promotion costs to the two operating divisions. He is considering
whether to base his allocations on the (1) expected increase in divisional revenue
from the promotions or (2) expected increase in divisional profit from the promotions
(before allocated promotion costs). General promotions had the following effects on
the two divisions:

Rentals Sales
Increase in divisional revenue $1,232,000 $168,000
Increase in profit (before allocated promotion costs) 167,200 136,800
a. Allocate the total promotion cost to the two divisions using change in revenue.
Allocated Cost
Rental Answer
Sales Answer
Total Answer
b. Allocate the total promotion cost to the two divisions using change in profit before
joint cost allocation.
Allocated Cost
Rental Answer
Sales Answer
Total Answer

Solutions

Expert Solution

Question 1

Particulars. Allocated Cost
Rental 45,760
Sales 6,240
Total Costs 52,000

Working Notes

Increase in Revenue of Rentals = $ 12,32,000

Increase in Revenue of Sales = $ 1,68,000

Total Increase in Sales Revenue = Increase in Revenue of Rentals + Increase in Revenue of Sales

= 12,32,000 + 1,68,000

= $ 14,00,000

Cost Allocation to Rental = General Promotion Costs * Increase in Revenue for Rental / Total Increase in Sales Revenue

= 52,000 * 12,32,000 / 14,00,000

= $ 45,760

Cost Allocation to Sales = General Promotion Costs * Increase in Revenue for Sales / Total Increase in Sales Revenue

= 52,000 * 168,000 / 14,00,000

= $ 6,240

Question 2

Particulars. Allocated Cost
Rental 28,600
Sales 23,400
Total Costs 52,000

Working Notes

Increase in Profit of Rentals = $ 167,200

Increase in Profit of Sales = $ 136,800

Total Increase in Profit = Increase in Profit of Rentals + Increase in Profit of Sales

= 167,200 + 136,800

= $ 304,000

Cost Allocation to Rental = General Promotion Costs * Increase in Profit for Rental / Total Increase in Profit

= 52,000 * 167,200 / 304,000

= $ 28,600

Cost Allocation to Sales = General Promotion Costs * Increase in Profit for Sales / Total Increase in Profit

= 52,000 * 136,800 / 304,000

= $ 23,400


Related Solutions

Perth Corporation has two operating divisions, a casino and a hotel. The two divisions meet the...
Perth Corporation has two operating divisions, a casino and a hotel. The two divisions meet the requirements for segment disclosures. Before transactions between the two divisions are considered, revenues and costs are as follows: Casino Hotel Revenues $ 35,000,000 $ 21,000,000 Costs 16,000,000 13,000,000 The casino and the hotel have a joint marketing arrangement by which the hotel gives coupons redeemable at casino slot machines and the casino gives discount coupons good for stays at the hotel. The value of...
Cooper Ltd. has 2 operating divisions: domestic sales and international sales.  They also have 2 support divisions:...
Cooper Ltd. has 2 operating divisions: domestic sales and international sales.  They also have 2 support divisions: accounting support and human resources support. For the past year, Cooper’s cost records show the following information: Support Divisions Operating Divisions Account’g Support Human Resources Support Domestic Sales Inter-national Sales Total Budgeted costs incurred before any interdivision cost allocations $500,000 $600,000 $8,400,000 $7,500,000 $ 17,000,000 Support work supplied by Accounting (based on # of employees) 20% 40% 40% 100% Support work supplied by Human...
26) During March, a firm expects its total sales to be $169,000, its total variable costs...
26) During March, a firm expects its total sales to be $169,000, its total variable costs to be $95,900, and its total fixed costs to be $25,900. The contribution margin for March is: Multiple Choice $73,100. $25,900. $47,200. $121,800. $95,900. 25) Forrester Company is considering buying new equipment that would increase monthly fixed costs from $240,000 to $627,000 and would decrease the current variable costs of $60 by $15 per unit. The selling price of $100 is not expected to...
Ferntree Experiences has two operating divisions, Winery and Restaurant. The two divisions have a marketing agreement...
Ferntree Experiences has two operating divisions, Winery and Restaurant. The two divisions have a marketing agreement to provide incentives to customers. The Winery division offers coupons good for meals at the restaurant and the restaurant division offers coupons good for wine tasting and purchases. Annual profits are $12 million. The two divisions meet the requirements for segment disclosures. Before the transactions are considered, revenues and costs (in thousands of dollars) for the two divisions are as follows. Winery Restaurant Revenue...
Garden Company is an integrated multidivisional manufacturing firm. Two of its divisions, Motor and Assembly, are...
Garden Company is an integrated multidivisional manufacturing firm. Two of its divisions, Motor and Assembly, are profit centres and their division managers have full responsibility for production and sales (both internal and external). Both the Motor and Assembly manager are evaluated by top management based on total profit. Motor is the exclusive producer of a special component called QS – 40. Since there is no outside competition for QS-40, the Motor division manager used the results of a market study...
Alden Co.’s monthly unit sales and total cost data for its operating activities of the past...
Alden Co.’s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs. Month Units Sold Total Cost Month Units Sold Total Cost 1 315,500 $ 153,000 7 364,500 $ 311,084 2 160,500 96,750 8 265,500 147,250 3 260,500 201,100 9 76,900 69,500 4 200,500 95,500 10 145,500 126,125 5 285,500 197,000 11 89,500 89,500 6 185,500 107,500 12 95,500 86,150 1....
The March 31, 2017, unadjusted trial balance for Silva Rentals after its first year of operations...
The March 31, 2017, unadjusted trial balance for Silva Rentals after its first year of operations is shown below: Silva Rentals Unadjusted Trial Balance March 31, 2017 Unadjusted Trial Balance No. Account Dr. Cr. 101 Cash $ 6,700 110 Rent receivable 30,700 124 Office supplies 2,100 141 Notes receivable, due 2017 44,500 161 Furniture 15,700 173 Building 213,000 183 Land 39,500 191 Patent 9,300 201 Accounts payable $ 13,450 252 Long-term note payable 172,000 301 Silva, Capital 85,000 302 Silva,...
The Ottoboni Corporation had two operating divisions, one manufacturing division and a finance division. Both divisions...
The Ottoboni Corporation had two operating divisions, one manufacturing division and a finance division. Both divisions are considered separate components. The finance division has been unprofitable, and on October 3, 2014, Ottoboni adopted a formal plan to sell the division, which subsequently was considered ‘held for sale’. The before-tax operating loss of the division for the year was $270,000. The company’s effective tax rate is 40%. The after-tax income from continuing operations for 2014 is $600,000. On December 31, 2014,...
Selected sales and operating data for three divisions of different structural engineering firms are given as...
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $ 12,000,000 $ 14,000,000 $ 25,000,000 Average operating assets $ 3,000,000 $ 7,000,000 $ 5,000,000 Net operating income $ 600,000 $ 560,000 $ 800,000 Minimum required rate of return 14 % 10 % 16 % Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover....
Selected sales and operating data for three divisions of different structural engineering firms are given as...
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $ 12,600,000 $ 35,750,000 $ 20,600,000 Average operating assets $ 3,150,000 $ 7,150,000 $ 5,150,000 Net operating income $ 516,600 $ 572,000 $ 597,400 Minimum required rate of return 9.00 % 9.50 % 11.60 % Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT