Question

Trevor Company discloses supplementary operating segment information for its three reportable segments. Data for 20X8 are available as follows:

Segment A Segment B Segment C

Sales $500,000 $300,000 $200,000
Traceable operating expenses 250,000 120,000 90,000

Allocable costs for the year was $180,000. Allocable costs are assigned based on the ratio of a segment's income before allocable costs to total income before allocable costs. The 20X8 operating profit for Segment B was:

a. $180,000
b. $120,000
c. $126,000
d. $110,000

Answer 1

Operating profit of segment B = $180,000

Step-by-step explanation:

The allowable cost to any of the segment would be equal to the proportion that the segment income bears to the overall total income multiplied by the allocable cost.

Mathematically, we can use the realationship below:

Allocable cost to Segment B = Sales of segment B/Total sales × Alllocable cost

Allowable cost = 180,000

Total sales = 250,000+ 120,000 + 90,000 = 460,000

Allocable cost to B = (120,000/460,000) × 180,000 = 46,956.52

Allocable cost to segment B =$46,956.52

However,the question required us to determine operation profit.

Operating profit is the excess of sales revenue over operating expenses

Operating profit of segment B-= 200,000 - 90,000 = 180,000

Operating profit of segment B = $180,000