Question

Profit Center Responsibility Reporting

Glades 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, 20Y8, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division	$35,910,000
Sales—Summer Sports Division	39,672,000
Cost of Goods Sold—Winter Sports Division	21,546,000
Cost of Goods Sold—Summer Sports Division	22,914,000
Sales Expense—Winter Sports Division	6,156,000
Sales Expense—Summer Sports Division	5,472,000
Administrative Expense—Winter Sports Division	3,591,000
Administrative Expense—Summer Sports Division	3,522,600
Advertising Expense	961,000
Transportation Expense	420,000
Accounts Receivable Collection Expense	231,200
Warehouse Expense	3,420,000

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, $451,000; Summer Sports Division, $510,000.
2. Transportation expense—charged back to divisions at a charge rate of $14 per bill of lading: Winter Sports Division, 14,300 bills of lading; Summer Sports Division, 15,700 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, 13,300 sales invoices; Summer Sports Division, 15,600 sales invoices.
4. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 160,000 square feet; Summer Sports Division, 200,000 square feet.

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

Glades Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y8
	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.

Glades Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y8
	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

Glades Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y8
	Winter Sports Division	Summer Sports Division
Sales	35910000	39672000
Cost of goods sold	21546000	22914000
Gross profit	14364000	16758000
Divisional selling and administrative expenses:
Divisional selling expenses	6156000	5472000
Divisional administrative expenses	3591000	3522600
Total divisional selling and administrative expenses	9747000	8994600
Income from operations before service department charges	4617000	7763400
Service department charges:
Advertising expense	451000	510000
Transportation expense	200200	219800
Accounts receivable collection expense	106400	124800
Warehouse expense	1520000	1900000
Total service department charges	2277600	2754600
Income from operations	2339400	5008800
Glades Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y8
	Winter Sports Division	Summer Sports Division	Total
Advertising expense	451000	510000	961000
Transportation rate per bill of lading	14	14
Number of bills of lading	14300	15700
Transportation expense	200200	219800	420000
Accounts receivable collection rate	8	8
Number of sales invoices	13300	15600
Accounts receivable collection expense	106400	124800	231200
Warehouse rate per sq. ft.	9.5	9.5
Number of square feet	160000	200000
Warehouse expense	1520000	1900000	3420000