Question: On Demand Sports Co operates two divisions the Action Sports Division and

On-Demand Sports Co. operates two divisions—the Action Sports Division and the Team Sports Division. The following income and expense accounts were provided as of November 30, 2012, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded:
Sales—Action Sports (AS) Division ......... $18,500,000
Sales—Team Sports (TS) Division ......... 30,600,000
Cost of Goods Sold—Action Sports (AS) Division .. 10,700,000
Cost of Goods Sold—Team Sports (TS) Division .... 19,200,000
Sales Expense—Action Sports (AS) Division ..... 1,500,000
Sales Expense—Team Sports (TS) Division ..... 2,100,000
Administrative Expense—Action Sports (AS) Division . 1,250,000
Administrative Expense—Team Sports (TS) Division . 1,450,000
Advertising Expense ............... 3,000,000
Transportation Expense .............. 654,900
Accounts Receivable Collection Expense ....... 400,500
Warehouse Expense ................. 800,000

The bases to be used in allocating expenses, together with other essential information, are as follows:
a. Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Action Sports Division, $1,200,000; Team Sports Division, $1,800,000.
b. Transportation expense—charged back to divisions at a charge rate of $18.50 per bill of lading: Action Sports Division, 14,000 bills of lading; Team Sports Division, 21,400 bills of lading.
c. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $9.00 per invoice: Action Sports Division, 32,000 sales invoices; Team Sports Division, 12,500 sales invoices.
d. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Action Sports Division, 120,000 square feet; Team Sports Division, 80,000 square feet.
Prepare divisional income statements with two column headings: Action Sports Division and Team Sports Division. Provide supporting schedules for determining service department charges.

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  • CreatedFebruary 04, 2014
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