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Fallow Corporation has two separate profit centers. The following information is available for the most recent year: West Division East Division Sales (net) $ 400,000 $ 550,000 Salary expense 46,000 60,000 Cost of goods sold 140,000 255,000 The West Division occupies 10,000 square feet in the plant. The East Division occupies 6,000 square feet. Rent, which was $ 80,000 for the year, is an indirect expense and is allocated based on square footage. Compute operating income for the West Division.

Respuesta :

akiran007

Answer:

Operating Income  WEST division     164,000

Explanation:

Fallow Corporation

Income Statement

                              West Division               East Division

Sales (net)               $ 400,000                    $ 550,000

Cost of goods sold    140,000                       255,000

Gross Profit                260,000                     295,000

Less Indirect Expenses

Salary expense           46,000                      60,000

Rent *                           50000                      30,000

Operating Income      164,000                   205,000

Rent is apportioned on the basis of the square footage.The west division has 10,000 square feet in the plant. The East Division occupies 6,000 square feet.

Rent of West Division = Area of the West/ Total Area (* RENT)

                                    = 10,000/16,000* 80,000= $ 50,000

Rent of East Division = 6,000/16,000* 80,000= $ 30,000

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