Question

Profit Center Responsibility Reporting

XSport Sporting Goods Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y9, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division	$22,785,000
Sales—Summer Sports Division	25,172,000
Cost of Goods Sold—Winter Sports Division	13,671,000
Cost of Goods Sold—Summer Sports Division	14,539,000
Sales Expense—Winter Sports Division	3,906,000
Sales Expense—Summer Sports Division	3,472,000
Administrative Expense—Winter Sports Division	2,278,500
Administrative Expense—Summer Sports Division	2,235,100
Advertising Expense	1,082,000
Transportation Expense	447,000
Accounts Receivable Collection Expense	228,800
Warehouse Expense	2,170,000

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: Winter Sports Division, $508,000; Summer Sports Division, $574,000.
2. Transportation expense—charged back to divisions at a charge rate of $15 per bill of lading: Winter Sports Division, 14,200 bills of lading; Summer Sports Division, 15,600 bills of lading.
3. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $8 per invoice: Winter Sports Division, 13,200 sales invoices; Summer Sports Division, 15,400 sales invoices.
4. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 120,000 square feet; Summer Sports Division, 160,000 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Do not round your interim calculations.

XSport Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division
Sales	$	$
Cost of goods sold
Gross profit	$	$
Divisional selling and administrative expenses:
Divisional selling expenses	$	$
Divisional administrative expenses
Total divisional selling and administrative expenses	$	$
Income from operations before service department charges	$	$
Service department charges:
Advertising expense	$	$
Transportation expense
Accounts receivable collection expense
Warehouse expense
Total service department charges	$	$
Income from operations	$	$

Provide supporting schedules for determining service department charges. If required, round per unit amounts to two decimal places and final answers to the nearest dollar.

XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer 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

XSport Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division
Sales	22785000	25172000
Cost of goods sold	13671000	14539000
Gross profit	9114000	10633000
Divisional selling and administrative expenses:
Divisional selling expenses	3906000	3472000
Divisional administrative expenses	2278500	2235100
Total divisional selling and administrative expenses	6184500	5707100
Income from operations before service department charges	2929500	4925900
Service department charges:
Advertising expense	508000	574000
Transportation expense	213000	234000
Accounts receivable collection expense	105600	123200
Warehouse expense	930000	1240000
Total service department charges	1756600	2171200
Income from operations	1172900	2754700
XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division	Total
Advertising expense	508000	574000	1082000
Transportation rate per bill of lading	15	15
Number of bills of lading	14200	15600
Transportation expense	213000	234000	447000
Accounts receivable collection rate	8	8
Number of sales invoices	13200	15400
Accounts receivable collection expense	105600	123200	228800
Warehouse rate per sq. ft.	7.75	7.75
Number of square feet	120000	160000
Warehouse expense	930000	1240000	2170000