Question

1. Using the data below for the Ace Guitar Company:

   	A Region		B Region
   Sales	$955,500		$514,500
   Cost of goods sold	363,100		195,500
   Selling expenses	229,300		123,500
   Service department expenses
   Purchasing				$247,000
   Payroll accounting				164,600

   Allocate service department expenses proportional to the sales of each region. Determine the divisional income from operations for the A and B regions. For interim calculations, round percentages to one decimal place.

   A Region	$
   B Region	$

Answer 1

Answer)

Calculation of Divisional Income

	A Region (In $)	B Region (In $)
Sales	955,500	514,500
Less: Cost of goods sold	363,100	195,500
Gross Profit	592,400	319,000
Less: Selling Expenses	229,300	123,500
Less: Service department expenses
Purchasing	160,550	86,450
Payroll accounting	106,990	57,610
Net Divisional Income	95,560	51,440

Working Note:

Calculation of proportion of sales of each region in total sales

A region = $ 955,500/ ($ 955,500 + $ 514,500)

                 = 65%

A region = $ 514,500/ ($ 955,500 + $ 514,500)

                 = 35%

Allocation of purchasing department expenses:

A Region = $ 247,000 X 65%

                 = $ 160,550

B Region = $ 247,000 X 35%

                 = $ 86,450

Allocation of payroll accounting department expenses:

A Region = $ 164,600 X 65%

                 = $ 106,990

B Region = $ 164,600 X 35%

                 = $ 57,610