Question

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.

Answer 1

Operating Income WEST division 164,000

Step-by-step 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