Final answer:
To calculate each region's divisional income from operations for Ace Guitar Company, service department expenses were allocated based on the proportion of sales, resulting in an income from operations of $52,080 for Region A and $96,920 for Region B.
Step-by-step explanation:
The student presented with data for Ace Guitar Company needs to allocate service department expenses (purchasing $250,300 and payroll accounting $166,900) proportional to the sales of each region before determining the divisional income from operations for the A and B regions. Allocation percentages are based on the proportion of sales for each region compared to total sales:
Region A: $521,500 / ($521,500 + $968,500) = 35.0%
Region B: $968,500 / ($521,500 + $968,500) = 65.0%
Allocated Purchasing Expenses:
- Region A: $250,300 * 35.0% = $87,605
- Region B: $250,300 * 65.0% = $162,695
Allocated Payroll Accounting Expenses:
- Region A: $166,900 * 35.0% = $58,415
- Region B: $166,900 * 65.0% = $108,485
Now, the income from operations for each region can be calculated:
Region A:
- Sales: $521,500
- Cost of Goods Sold: -$198,200
- Selling Expenses: -$125,200
- Allocated Purchasing Expenses: -$87,605
- Allocated Payroll Accounting Expenses: -$58,415
- Income from Operations: $52,080
Region B:
- Sales: $968,500
- Cost of Goods Sold: -$368,000
- Selling Expenses: -$232,400
- Allocated Purchasing Expenses: -$162,695
- Allocated Payroll Accounting Expenses: -$108,485
- Income from Operations: $96,920