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Using the data below for Ace Guitar Company: Region A Region B Sales $786,500 $643,500 Cost of goods sold 298,900 244,500 Selling expenses 188,800 154,400 Service department expenses Purchasing $240,200 Payroll accounting 160,200 Allocate service department expenses proportionally to the sales of each region, determine the divisional income from operations for the Regions A and B. For interim calculations, round the percentages to one decimal place. Region A $fill in the blank 1 Region B $fill in the blank 2

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Solution :

Calculation of income from operations

Sales                                                                      Region A        Region B

Cost of goods sold                                               643,500          786,500

Selling expenses                                                  244,500           298,900

Service department expenses                            154,400           188,800

Purchasing (working note - 1)                              108,090           132,110

Payroll accounting (working note - 2)                  72,090            88,110    

Income from expenses                                         $ 64,420        $ 78,580

Working note 1

Allocation of purchasing expenses:

A region = [tex]$240,200 \times \frac{643500}{(643500+786500)}$[/tex]

              = $ 108,090

B region = [tex]$240,200 \times \frac{786500}{(643500+786500)}$[/tex]

              = $ 132,110

Working note 2

Allocation of payroll accounting expenses.

A region = 160200 x 0.45  (sales ratio)

              = $ 72,090

B region  = 160,200 x 0.55  (sales ratio)

               = $ 88,110

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