Question

Using the following data for ace guitar company:

A region B region
sales $500,500 $929,500
cost of goods sold 190,200 353,200
selling expenses 120,100 223,100
support department expenses:
purchasing $240,200
payroll accounting 160,200
allocate support department expenses proportional to the sales of each region. determine the divisional operating income for the a and b regions. For interim calculations, round percentages to one decimal place and all other amounts to the nearest whole dollar. A Region Operating Income $_______

Answer 1

To determine the divisional operating income for A Region, we allocate the support department expenses proportionally to sales, calculate the total allocated support expenses, and then subtract all expenses from A Region's sales, resulting in a divisional operating income of $50,060.

Step-by-step explanation:

To calculate the divisional operating income for A Region at Ace Guitar Company, we will first allocate the support department expenses proportional to the sales of each region.

Sales for A Region total $500,500, and for B Region, it's $929,500, which leads to total sales of $1,430,000.

The allocation percentage for A Region is

($500,500 / $1,430,000) * 100%, or approximately 35.0%.

Similarly, the allocation for B Region would be the remaining 65.0%.

Now, to allocate support department expenses to A Region:

• Purchasing expenses: $240,200 * 35.0% = $84,070
• Payroll accounting expenses: $160,200 * 35.0% = $56,070

Summing these up, the total allocated support expenses for A Region equals

$84,070 + $56,070 = $140,140.

To calculate the operating income for A Region, we subtract cost of goods sold, selling expenses, and the allocated support expenses from sales:

A Region Operating Income = Sales - Cost of Goods Sold - Selling Expenses - Allocated Support Expenses
= $500,500 - $190,200 - $120,100 - $140,140
= $50,060
Thus, the A Region Operating Income is $50,060.