O\'Neill Sporting Goods Co. operates two divisions-the Winter Sports Division an
ID: 2487067 • Letter: O
Question
O'Neill Sporting Goods Co. operates two divisions-the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of June 30, 2014, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded and posted:
The bases to be used in allocating expenses, together with other essential information, are as follows:
Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $500,000; Summer Sports Division, $565,000.
Transportation expense—charged back to divisions at a charge rate of $15 per bill of lading: Winter Sports Division, 14,400 bills of lading; Summer Sports Division, 15,800 bills of lading.
Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $8 per invoice: Winter Sports Division, 13,400 sales invoices; Summer Sports Division, 15,700 sales invoices.
Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 170,000 square feet; Summer Sports Division, 210,000 square feet.
Sales-Winter Sports Division $32,917,500 Sales-Summer Sports Division 36,366,000 Cost of Goods Sold—Winter Sports Division 19,750,500 Cost of Goods Sold—Summer Sports Division 21,004,500 Sales Expense—Winter Sports Division 5,643,000 Sales Expense—Summer Sports Division 5,016,000 Administrative Expense—Winter Sports Division 3,291,800 Administrative Expense—Summer Sports Division 3,229,100 Advertising Expense 1,065,000 Transportation Expense 453,000 Accounts Receivable Collection Expense 232,800 Warehouse Expense 3,135,000Explanation / Answer
Service Department Charges Sales-Winter Sports Division Sales-Summer Sports Division Advertising expense 5,00,000 5,65,000 Transportation rate per bill of lading 8 8 Number of bills of lading 14400 15800 Transportation expense 115200 126400 Accounts receivable collection rate 8 8 Number of sales invoices 13400 15700 Accounts receivable collection expense 107200 125600 Warehouse rate per sq. ft. ($3135000/380000 sq. ft.) 8.25 8.25 Number of square feet 170000 210000 Warehouse expense 1402500 1732500
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