Question

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	$10,540,000
Sales—Summer Sports Division	13,645,000
Cost of Goods Sold—Winter Sports Division	6,300,000
Cost of Goods Sold—Summer Sports Division	7,888,000
Sales expense—Winter Sports Division	1,660,000
Sales expense—Summer Sports Division	1,898,000
Administrative Expense—Winter Sports Division	1,014,000
Administrative Expense—Summer Sports Division	1,209,600
Advertising Expense	481,500
Transportation Expense	135,500
Accounts Receivable Collection Expense	120,450
Warehouse Expense	772,000

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

A.	Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $219,300; Summer Sports Division, $262,200.
B.	Transportation expense—charged back to divisions at a charge rate of $5 per bill of lading: Winter Sports Division, 12,000 bills of lading; Summer Sports Division, 15,100 bills of lading.
C.	Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $5 per invoice: Winter Sports Division, 9,680 sales invoices; Summer Sports Division, 14,410 sales invoices.
D.	Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 90,000 square feet; Summer Sports Division, 103,000 square feet.

	Required:
1.	Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Refer to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. “Less” or “Plus” and colons will automatically appear if it is required. Be sure to complete the statement heading. (You may find it useful to work the Supporting Calculations first.)
2.	Provide supporting calculations for service department charges.

Labels and Amount Descriptions

Labels
For the Year Ended December 31, 20Y8
For the Month Ended December 31, 20Y8
Service department charges
Amount Descriptions
Accounts receivable collection expense
Advertising expense
Cost of goods sold
Divisional administrative expenses
Divisional selling expenses
Gross profit
Income from operations
Income from operations before service department charges
Sales
Total divisional expenses
Total service department charges
Transportation expense
Warehouse expense

Divisional Income Statements

1. Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Refer to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. “Less” or “Plus” and colons will automatically appear if it is required. Be sure to complete the statement heading. (You may find it useful to work the Supporting Calculations first.)

GLADES SPORTING GOODS CO.

Divisional Income Statements

1		Winter Sports Division	Summer Sports Division
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Supporting Calculations

2. Provide supporting calculations for service department charges.

Service Department Charges
	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

Answer-

DIVISIONAL INCOME STATEMENT
	Winter sports division	Summer Sports division
Sales	$10,540,000	$13,645,000
Cost of goods sold	6,300,000	7,888,000
Gross profit	4,240,000	5,757,000
Divisional selling expenses	1,660,000	1,898,000
Divisional administrative	1,014,000	1,209,600
Operating expenses	2,674,000	3,107,600
Income from operations before service department charges	1,566,000	2,649,400
Less service department
Advertising	$219,300	$262,200
Transportation	60,000	75,500
Accounts receivables collection	48,400	72,050
Warehouse expenses	360,000	412,000
Total	687,700	821,750
Income from operations	878,300	1,827,650

Workings

Advertising expenses	$219,300	$262,200	$481,500
Transportation rate per bill of lading	5	5	5
Number of bills of lading	12,000	15,100	27,100
Transportation expenses	60,000	75,500	135,500
Accounts receivables collection rate	5	5	5
Number of sales Invoices	9,680	14,410	29000
Accounts receivables collection expenses	48,400	72,050	120,450
Warehouse rate per sq.ft	4	4	4
Number of square feet	90,000	103,000	193,000
Warehouse expenses	360,000	412,000	772,000

In respect of warehouse, rate per sq.ft was computed as 772,000/ 193,000 = 4 per sq.ft

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