Question

Fallow Corporation has two separate profit centers. The following information is available for the most recent year: West Division East Division Sales (net) $390,000 $540,000 Salary expense 45,000 59,000 Cost of goods sold 137,000 251,000 The West Division occupies 9,750 square feet in the plant. The East Division occupies 5,850 square feet. Rent, which was $ 78,000 for the year, is an indirect expense and is allocated based on square footage. Compute operating income for the West Division.

Answer 1

Answer: $159250

Step-by-step explanation:

The operating income for the West Division will be calculated thus:

Sales = $390000

Less: Cost of goods sold = $137000

Less: Salary = $45000

Less: Rent = $48750

Operating Income = $159250

Rent was calculated as:

= $78000 × 9750/(9750 + 5850)

= $78000 × 9750/15600

= $48750