Horton Technology has two divisions, Consumer and Commercial, and two corporate support departments, Tech Services and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows: Tech Services Department $897,600
Purchasing Department 249,000
Other corporate administrative expenses 493,000
Total expense $1,639,600
The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Services Department allocates costs to the divisions based on the number of computers in the department, and the Purchasing Department allocates costs to the divisions based on the number of purchase orders for each department. The services used by the two divisions are as follows:
Tech Services Purchasing
Consumer Division 420 computers 5,800 purchase orders
Commercial Division 260 10,800
Total 680 computers 16,600 purchase orders
The support department allocations of the Tech Services Department and the Purchasing Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows:
Consumer Commercial
Revenues $7,543,100 $5,854,600
Cost of goods sold 4,190,600 2,956,300
Operating expenses 1,479,600 1,463,500
Prepare the divisional income statements for the two divisions. Do not round your interim calculations.
Horton Technology
Divisional Income Statements
For the Year Ended December 31, 20Y7
Consumer Division Commercial Division
Revenues $ $
Cost of goods sold
Gross profit $ $
Operating expenses
Operating income before support department allocations $ $
Support department allocations:
Tech service department $ $
Purchasing department
Total support department allocations $ $
Operating income $ $