Question

Divisional Income Statements with Support Department Allocations

Horton Technology has two divisions, Consumer and Commercial, and two corporate support departments, Tech Services and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows:

Tech Services Department	$1,014,300
Purchasing Department	507,000
Other corporate administrative expenses	654,000
Total expense	$2,175,300

The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Services Department allocates costs to the divisions based on the number of computers in the department, and the Purchasing Department allocates costs to the divisions based on the number of purchase orders for each department. The services used by the two divisions are as follows:

	Tech Services		Purchasing
Consumer Division	390	computers	5,900	purchase orders
Commercial Division	240		11,000
Total	630	computers	16,900	purchase orders

The support department allocations of the Tech Services 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	$9,465,800		$8,302,000
Cost of goods sold	5,258,800		4,192,100
Operating expenses	1,856,700		2,075,300

Prepare the divisional income statements for the two divisions. Do not round your interim calculations.

Horton Technology
Divisional Income Statements
For the Year Ended December 31, 20Y7
		Consumer Division		Commercial Division
Revenues		$		$
Cost of goods sold
?		$		$
Operating expenses
Operating income before support department allocations		$		$
Support department allocations:
Tech service department		$		$
Purchasing department
Total support department allocations		$		$
?		$		$

Answer 1

Horton Technology
Divisional Income Statements
For the Year Ended December 31, 20Y7
	Consumer Division	Commercial Division
Revenues	9,465,800	8,302,000
Cost of goods sold	5,258,800	4,192,100
Gross Profit	4,207,000	4,109,900
Operating expenses	1,856,700	2,075,300
Operating income before support department allocations	2,350,300	2,034,600
Support department allocations:
Tech service department	627,900	386,400
Purchasing department	177,000	330,000
Total support department allocations	804,900	716,400
Net Operating Income/Segment Margin	1,545,400	1,318,200