Question

Fallow Corporation has two separate profit centers. The following information is available for the most recent year: West Division East Division Sales (net) $ 200,000 $ 350,000 Salary expense 26,000 40,000 Cost of goods sold 80,000 175,000 The West Division occupies 5,000 square feet in the plant. The East Division occupies 3,000 square feet. Rent, which was $40,000 for the year, is an indirect expense and is allocated based on square footage. Compute operating income for the West Division.

Answer 1

$69,000

Step-by-step explanation:

West division:

Sales (S) = $200,000

Salary expense (E) = $26,000

Cost of goods sold (C) = $80,000

Proportional Rent (R) = $40,000 % of square footage

Area of the division = 5,000 square ft

Total Area = 8,000 square ft

The operating income (I) for the West Division is given by the amount of sales subtracted by salary expenses, cost of goods sold and rent:

`I = S-E-C-R\\I = 200,000 - 26,000 - 80,000 - (40,000*(5,000)/(8,000))\\I=\$69,000`

The yearly operating income for Fallow Corporation's West Division is $69,000