Ivisional Income Statements with Support Department Allocations
Horton Technology has two divisions, Consumer and Commercial, and two corporate support departments, Tech Services and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows:
Tech Services Department $1,170,000
Purchasing Department 450,000
Other corporate administrative expenses 800,000
Total expense $2,420,000
The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Services Department allocates costs to the divisions based on the number of computers in the department, and the Purchasing Department allocates costs to the divisions based on the number of purchase orders for each department. The services used by the two divisions are as follows:
Tech Services Purchasing
Consumer Division 1,100 computers 4,000 purchase orders
Commercial Division 700 8,000
Total 1,800 computers 12,000 purchase orders
The support department allocations of the Tech Services Department and the Purchasing Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows:
Consumer Commercial
Revenues $15,500,000 $33,250,000
Cost of goods sold 10,000,000 15,800,000
Operating expenses 3,000,000 1,750,000
Prepare the divisional income statements for the two divisions. Round your interim calculations to three decimal places, if required.
Horton Technology
Divisional Income Statements
For the Year Ended December 31, 20Y7
Consumer Division Commercial Division
Revenues $ $
Cost of goods sold
Gross profit $ $
Operating expenses
Operating income before support
department allocations $ $
Support department allocations:
Tech service department $ $
Purchasing department
Total support department allocations $ $
Operating income $ $