Question

Using the data below for Ace Guitar Company: Region A Region B Sales $786,500 $643,500 Cost of goods sold 298,900 244,500 Selling expenses 188,800 154,400 Service department expenses Purchasing $240,200 Payroll accounting 160,200 Allocate service department expenses proportionally to the sales of each region, determine the divisional income from operations for the Regions A and B. For interim calculations, round the percentages to one decimal place. Region A $fill in the blank 1 Region B $fill in the blank 2

Answer 1

Calculation of income from operations

Sales Region A Region B

Cost of goods sold 643,500 786,500

Selling expenses 244,500 298,900

Service department expenses 154,400 188,800

Purchasing (working note - 1) 108,090 132,110

Payroll accounting (working note - 2) 72,090 88,110

Income from expenses $ 64,420 $ 78,580

Working note 1

Allocation of purchasing expenses:

A region =
`$240,200 * (643500)/((643500+786500))$`

= $ 108,090

B region =
`$240,200 * (786500)/((643500+786500))$`

= $ 132,110

Working note 2

Allocation of payroll accounting expenses.

A region = 160200 x 0.45 (sales ratio)

= $ 72,090

B region = 160,200 x 0.55 (sales ratio)

= $ 88,110