Question

Profit Center Responsibility Reporting

XSport 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, 20Y9, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division	$10,500,000
Sales—Summer Sports Division	13,600,000
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	1,680,000
Sales Expense—Summer Sports Division	1,904,000
Administrative Expense—Winter Sports Division	1,050,000
Administrative Expense—Summer Sports Division	1,210,400
Advertising Expense	482,000
Transportation Expense	240,000
Accounts Receivable Collection Expense	120,500
Warehouse Expense	1,200,000

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

Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $216,900; Summer Sports Division, $265,100.

Transportation expense—charged back to divisions at a charge rate of $8.00 per bill of lading: Winter Sports Division, 14,400 bills of lading; Summer Sports Division, 15,600 bills of lading.

Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $5.00 per invoice: Winter Sports Division, 9,640 sales invoices; Summer Sports Division, 14,460 sales invoices.

Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 94,000 square feet; Summer Sports Division, 106,000 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Round your interim calculations to two decimal places, if required.

XSport Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y9
	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	$	$

Feedback

For each division: Sales minus cost of goods sold equals gross profit minus divisional selling and administrative expenses equals income from operations before service department charges. Service department charges are subtracted from income from operations before service department charges.

Learning Objective 3.

Provide supporting calculations for service department charges. If required, round per unit amounts to two decimal places and final answers to the nearest dollar.

XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y9
	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

XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division	Total		Working
Advertising expense	216900	265100	482000		Given in Que
Transportation rate per bill of lading	8	8	8		A
Number of bills of lading	14400	15600	30000		B
Transportation expense	115200	124800	240000		A*B
Accounts receivable collection rate	5	5	5		C
Number of sales invoices	9640	14460	24100		D
Accounts receivable collection expense	48200	72300	120500		C*D
Warehouse rate per sq. ft.	6	6	6		E/F
Number of square feet	94000	106000	200000		E
Warehouse expense	564000	636000	1200000		F
XSport Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y9
	Winter Sports Division	Summer Sports Division
Sales	10500000	13600000
Cost of goods sold	6300000	7880000
Gross profit	4200000	5720000	Sales-COGS
Divisional selling and administrative expenses:
Divisional selling expenses	1680000	1904000
Divisional administrative expenses	1050000	1210400
Total divisional selling and administrative expenses	2730000	3114400	Selling+Admin
Income from operations before service department charges	1470000	2605600	Gross Profit-Total Divisional
Service department charges:
Advertising expense	216900	265100
Transportation expense	115200	124800
Accounts receivable collection expense	48200	72300
Warehouse expense	564000	636000
Total service department charges	944300	1098200
Income from operations	525700	1507400