Van Emburgh Technology has two divisions, Consumer and Commercial, and two corporate service departments

Van Emburgh Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and Accounts Payable. The corporate expenses for the year ended December 31, 2014, are as follows:

Tech Support Department.                       | $   676,000
Accounts Payable Department                 |     256,000
Other corporate administrative expenses |     402,000
Total corporate expense                           | $1,334,000

The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Accounts Payable Department charges divisions for services, based on the number of checks issued for each department. The usage of service by the two divisions is as follows:

                                       Tech Support  |  Accounts payable
Consumer Division       250 computers |    3,400 checks
Commercial Division    150                  |    6,600
Total                              400 computers |   10,000 checks

The service department charges of the Tech Support Department and the Accounts
Payable 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                    $5,944,000 |   $4,947,200
Cost of goods sold.       3,298,400 |    2,500,000
Operating expenses       1,172,000 |    1,236,800

Prepare the divisional income statements for the two divisions.


Answer:


VAN EMBURGH TECHNOLOGY 
Divisional Income Statements 
For the Year Ended December 31, 2014 
 Consumer Division Commercial Division 
Revenues  $5,944,000  $4,947,200 
Cost of goods sold  3,298,400  2,500,000 
Gross profit  $2,645,600  $2,447,200 
Operating expenses  1,172,000  1,236,800 
Income from operations     
before service     
department charges  $1,473,600  $1,210,400 
Less service department     
charges:     
Tech Support Department (Note 1) $422,500  $253,500  
Accounts Payable     
Department (Note 2) 87,040 509,540 168,960 422,460 
Income from operations  $   964,060  $   787,940 
     
Supporting calculations for controllable service department charges: 
Note 1: Consumer Division ($676,000 ÷ 400 computers) × 250 computers = $422,500 
Commercial Division ($676,000 ÷ 400 computers) × 150 computers = $253,500 
Note 2: Consumer Division ($256,000 ÷ 10,000 checks) × 3,400 checks = $87,040 
Commercial Division ($256,000 ÷ 10,000 checks) × 6,600 checks = $168,960