Question

Profit Center Responsibility Reporting

On-Demand Sports Co. operates two divisions—the Action Sports Division and the Team Sports Division. The following income and expense accounts were provided as of November 30, 20Y1, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded:

Sales—Action Sports (AS) Division	$26,775,000
Sales—Team Sports (TS) Division	29,580,000
Cost of Goods Sold—Action Sports (AS) Division	16,065,000
Cost of Goods Sold—Team Sports (TS) Division	17,085,000
Sales Expense—Action Sports (AS) Division	4,590,000
Sales Expense—Team Sports (TS) Division	4,080,000
Administrative Expense—Action Sports (AS) Division	2,677,500
Administrative Expense—Team Sports (TS) Division	2,626,500
Advertising Expense	965,000
Transportation Expense	357,600
Accounts Receivable Collection Expense	257,400
Warehouse Expense	2,550,000

The bases to be used in allocating expenses, together with other essential information, are as follows:

1. Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Action Sports Division, $453,000; Team Sports Division, $512,000.
2. Transportation expense—charged back to divisions at a charge rate of $12 per bill of lading: Action Sports Division, 14,200 bills of lading; Team Sports Division, 15,600 bills of lading.
3. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $9 per invoice: Action Sports Division, 13,200 sales invoices; Team Sports Division, 15,400 sales invoices.
4. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Action Sports Division, 130,000 square feet; Team Sports Division, 170,000 square feet.

Prepare a divisional income statement with two column headings: Action Sports Division and Team Sports Division.

ON-DEMAND SPORTS CO.
Divisional Income Statements
For the Year Ended November 30, 20Y1
	Action Sports Division	Team Sports Division
Sales	$	$
Cost of goods sold
Gross profit	$	$
Divisional selling expenses	$	$
Divisional administrative expenses
	$	$
Operating income before service department charges	$	$
Less service department charges:
Advertising expense	$	$
Transportation expense
Accounts receivable collection expense
Warehouse expense
Total	$	$
Operating income	$	$

Provide supporting schedules for determining service department charges. If required, round your answers to the nearest cent.

ON-DEMAND SPORTS CO.
Service Department Charges
	Action Sports Division	Team Sports Division	Total
Advertising expense	$	$	$
Transportation rate per bill of lading	$	$
Number of bills of lading	×	×
Transportation expense	$	$	$
Accounts receivable collection rate	$	$
Number of sales invoices	×	×
Accounts receivable collection expense	$	$	$
Warehouse rate per sq. ft.	$	$
Number of square feet	×	×
Warehouse expense	$	$	$

Answer 1

ON-DEMAND SPORTS CO.
Divisional Income Statements
For the Year Ended November 30, 20Y1
	Winter Sports Division	Summer Sports Division
Sales	26775000	29580000
Cost of goods sold	16065000	17085000
Gross profit	10710000	12495000
Divisional selling and administrative expenses:
Divisional selling expenses	4590000	4080000
Divisional administrative expenses	2677500	2626500
Total divisional selling and administrative expenses	7267500	6706500
Income from operations before service department charges	3442500	5788500
Service department charges:
Advertising expense	453000	512000
Transportation expense	170400	187200
Accounts receivable collection expense	118800	138600
Warehouse expense	1105000	1445000
Total service department charges	1847200	2282800
Income from operations	1595300	3505700
ON-DEMAND SPORTS CO.
Service Department Charges
For the Year Ended November 30, 20Y1
	Winter Sports Division	Summer Sports Division	Total
Advertising expense	453000	512000	965000
Transportation rate per bill of lading	12	12
Number of bills of lading	14200	15600
Transportation expense	170400	187200	357600
Accounts receivable collection rate	9	9
Number of sales invoices	13200	15400
Accounts receivable collection expense	118800	138600	257400
Warehouse rate per sq. ft.	8.5	8.5
Number of square feet	130000	170000
Warehouse expense	1105000	1445000	2550000