O’Neill Sporting Goods Co. operates two divisions-the Winter Sports Division and the Summer Sports Division. The following income and expense account were provided from the trial balance as of June 30, 2012, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales— Winter Sports Division ........ $21,500,000

Sales—Summer Sports Division ........ 24,210,000

Cost of Goods Sold—Winter Sports Division ..... 12,900,000

Cost of Goods Sold—Summer Sports Division ... 14,041,800

Sales Expense—Winter Sports Division ....... 3,440,000

Sales Expense—Summer Sports Division ..... 3,389,400

Administrative Expense—Winter Sports Division .... 2,150,000

Administrative Expense—Summer Sports Division .. 2,154,690

Advertising Expense .............. 989,000

Transportation Expense ............. 411,600

Accounts Receivable Collection Expense ...... 225,600

Warehouse Expense .............. 2,100,000

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: Winter Sports Division, $465,000; Summer Sports Division, $524,000.

(b) Transportation expense—charged back to divisions at a charge rate of $14.00 per bill of lading: Winter Sports Division, 14,000 hills of lading; Summer Sports Division, 15,400 bills of lading.

(c) Accounts receivable collection expense—incurred at headquarters, charged hack to divisions at a charge rate of $8.00 per invoice: Winter Sports Division, 13,000 sales invoices; Summer Sports Division. 15,200 sales invoices.

(d) Warehouse expense-charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 140,000 square feet; Summer Sports Division, 100,000 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and summer division. Provided supporting schedules for determining service department charges.

 

O’NEILL SPORTING GOODS CO.

Divisional Income Statements

For the Year Ended June 30, 2012

                                                                                                              Winter                  Summer
                                                                                                                Sports                     Sports

                                                                                                               Division                 Division

Sales.......................................................................................      $   21,500,000         $   24,210,000

Cost of goods sold.................................................................           12,900,000              14,041,800

Gross profit............................................................................      $     8,600,000         $   10,168,200

Divisional selling expenses....................................................      $     3,440,000         $     3,389,400

Divisional administrative expenses........................................             2,150,000                2,154,690

                                                                                                             $     5,590,000         $     5,544,090

Income from operations before service

        department charges........................................................      $     3,010,000         $     4,624,110

Less service department charges:

        Advertising expense......................................................      $        465,000         $        524,000

        Transportation expense..................................................               196,000                   215,600

        Accounts receivable collection expense.........................               104,000                   121,600

        Warehouse expense........................................................             1,225,000                   875,000

        Total .............................................................................             $     1,990,000     $         1,736,200

Income from operations.........................................................        $     1,020,000         $     2,887,910

Supporting Schedule:

Service Department Charges

                                                                                                Winter            Summer
                                                                                                 Sports               Sports

                                                                                                Division            Division             Total   

Advertising expense.................................................      $     465,000        $  524,000         $989,000

Transportation rate per bill of lading........................      $         14.00        $      14.00

Number of bills of lading.........................................      ×       14,000        ×   15,400

Transportation expense.............................................      $     196,000        $  215,600         $411,600

Accounts receivable collection rate..........................      $           8.00        $        8.00

Number of sales invoices..........................................      ×       13,000        ×   15,200

Accounts receivable collection expense...................      $     104,000        $  121,600         $225,600

Warehouse rate per sq. ft.

      ($2,100,000/240,000 sq. ft.)...............................      $           8.75        $        8.75

Number of square feet..............................................      ×     140,000        × 100,000

Warehouse Expense.................................................         $1,225,000        $  875,000      $2,100,000