Question

1. Using the data from the Coffee & Cocoa Company, (a) determine the divisional income from operations for the THREE regions by allocating the service department expenses proportional to the sales of the regions (b) determine the increase or decrease in net income if C Region did not operate. A Region - B Region - C Region Sales $600,000 - $900,000 - $300,000 Cost of goods sold $200,000 - $350,000 - $190,000 Selling Expenses $150,000 - $275,000 - $100,000 Service Department expenses Purchasing - - $210,000 Payroll accounting - - $108,000

Answer 1

A) Calculation of divisional income from operations

Particulars	Region A	Region B	Region C
Sales	$ 600,000	$ 900,000	$ 300,000
Less: cost of goods sold	$ 200,000	$ 350,000	$ 190,000
A. Gross profit	$ 400,000	$ 550,000	$ 110,000
Less: operating expenses
Selling expenses	$ 150,000	$ 275,000	$ 100,000
Service department expenses : Purchasing in 2:3:1	$ 70,000	$ 105,000	$ 35,000
Service department expenses : payroll accounting in 2:3:1	$ 36,000	$ 54,000	$ 18,000
B. Total operating expenses	$ 256,000	$ 434,000	$ 153,000
C. Divisional income from operations [ A - B]	$ 144,000	$ 116,000	$( 43,000)

B) Calculation of increase increase or decrease in income if Region C didn't operate

Particulars	Region A	Region B
Sales	$ 600,000	$ 900,000
Less: cost of goods sold	$ 200,000	$ 350,000
A. Gross profit	$ 400,000	$ 550,000
Less: operating expenses
Selling expenses	$ 150,000	$ 275,000
Service department expenses : Purchasing in 2:3	$ 84,000	$ 126,000
Service department expenses : payroll accounting in 2:3	$ 43,200	$ 64,800
B. Total operating expenses	$ 277,200	$ 465,800
C. Divisional income from operations [ A-B]	$ 122,800	$ 84,200
D. Decrease in income from operations	$ 21,200	$ 31,800